Health Savings Accounts (HSAs) have been around since December 2003 and have become quite popular. If you’re a small business considering opening a small business HSA, here’s what you need to know. Even though you have time to arrange healthcare for 2025, it’s not too early to start planning.
Many small businesses use HSAs as their primary or an optional healthcare plan for employees. For small businesses, HSAs are a good way to provide health coverage without breaking the bank.
**Basics**
Today, over 33 million HSAs hold more than $100 billion. This number is expected to grow to 43 million by the end of 2025, making HSAs a viable option for many small businesses looking for health insurance solutions.
To contribute to an HSA, an employee must be covered by a high-deductible health plan (HDHP) and cannot be on Medicare. An HDHP, as the name suggests, covers costs after a deductible is met, except for certain preventive care, and typically has lower premiums than traditional health plans.
From a tax perspective, an HDHP is health insurance with a minimum annual deductible and a maximum out-of-pocket limit. The following chart provides the parameters for 2024 and 2025:
| Type of Coverage | Minimum Annual Deductible 2024 | Minimum Annual Deductible 2025 | Maximum Out-of-Pocket 2024 | Maximum Out-of-Pocket 2025 |
| —————- | —————————— | —————————— | ————————– | ————————– |
| Self-only | $1,600 | $1,650 | $8,050 | $9,200 |
| Family coverage | $3,200 | $3,300 | $16,100 | $18,400 |
There’s a limit on annual contributions to HSAs. For 2024, the maximum is $4,150 for self-only coverage and $8,300 for family coverage. Employees 55 or older can contribute an additional $1,000. Both spouses must have separate HSAs if they want to make this extra contribution.
Employees manage their own HSAs, so they decide when and for what to take distributions. Qualified medical expenses are tax-free, while non-qualified expenses incur a 20% penalty unless the owner is 65 or older.
**Handling HSAs for Your Employees**
The law is quite flexible regarding how to manage HSAs. Here are some options:
1. The employer offers an HDHP but doesn’t contribute to employees’ HSAs. Employees contribute on their own and claim a tax deduction on their personal income tax returns, regardless of other deductions.
2. The employer offers an HDHP and partially contributes to employees’ HSAs. As of 2022, the average employer contribution was $869 per employee. Contributions must be nondiscriminatory. Employers deduct these contributions, employees aren’t taxed on them, and there are no payroll taxes.
3. The employer offers an HDHP and contributes fully up to the annual limit. This can be beneficial for small, family-owned businesses if they can afford it.
4. The employer doesn’t offer an HDHP but still contributes to employees’ HSAs if they have an HDHP through another source. This includes plans from the government Marketplace that meet the HDHP definition. Employer contributions are not reported on employees’ W-2s.
**Pending Legislation to Improve HSAs**
Due to HSAs’ popularity and the benefits they offer for healthcare savings, there have been various proposals in Congress to expand their use. Two recent proposals include:
1. The Health Savings Act of 2023 (1158), which aims to expand HSAs. If passed, it would allow both spouses aged 55 and older to make catch-up contributions to the same account. It would also permit using HSA funds for purchasing insurance, nutritional supplements, fitness memberships, and exercise equipment, and increase the tax-deductible contribution limit to match the out-of-pocket limit for HSA-eligible health plans.
2. The Stop Penalizing Working Seniors Act (H.R. 2769), which would enable contributions for Medicare-eligible individuals aged 65 or older, provided their Medicare benefits are limited to hospital insurance benefits under Medicare Part A.
**Conclusion**
In the coming months, decide whether to offer HSAs and how much you’ll contribute. Keep an eye on legislative changes that might affect HSA rules. Discuss these plans with your CPA or advisor to consider the costs for your 2024 budget. For more details, refer to IRS Publication 969.
