Savings and Tax Benefits

What is an HSA?

An HSA is a savings account into which both employers and employees can deposit money on a tax-preferred basis. Contributions are tax-free, account interest accumulates tax-free, and dollars spent on qualified medical expenses are tax-free. And, unlike the more widely used Flexible Spending Accounts (FSAs) in which money must be used up in a given year or forfeited, HSA savings can accumulate for years.

Each year, employers and employees together can contribute up to the annual Internal Revenue Service (IRS) limit — for the 2009 tax year, that maximum is $3,000 for individuals and $5,950 for a family. Not only can money from HSAs be used for current, qualified health care expenses, including co-pays, deductibles, and doctor and hospital visits, but it also can be saved for future health care expenses, such as Medicare premiums, on a tax-free basis. In fact, an HSA can provide your employees with a valuable source of retirement income alongside a 401(k) and Individual Retirement Account (IRA) if they let their funds grow.