As a business owner, you juggle countless responsibilities, from growing your enterprise to managing your team. Your staff aren’t just an important part of your business structure, they are people you care about.
Choosing benefits that best support the wellbeing of your employees without straining your budget is vital. Among all the different options, Health Savings Accounts (HSAs) are a standout. In fact, as of 2023, Americans held over $100 billion in HSA assets, with balances expected to increase nearly 25% in 2025.
This rapid growth underscores the value of HSAs as both a healthcare and financial planning tool. They can be a strategic tool that may not only control costs, but also open doors for long-term retirement planning.
Let’s investigate if HSAs are a good planning strategy for business owners.
What Is An HSA?
A Health Savings Account (HSA) is a type of personal savings account set up to pay qualified health care costs, tax free. It has similar characteristics to an IRA but is for healthcare spending.
The IRS sets the rules regarding HSAs, and they can only be opened when paired with high-deductible health plans (HDHPs), which typically have lower monthly premiums. Contributions, earnings, and qualified withdrawals are all tax-free, making HSAs a great tax-advantaged tool for healthcare and retirement planning.
For business owners looking at healthcare options, HSAs can serve as both a practical employee benefit and a strategic financial planning tool for your personal and business goals.
Who Is Eligible?
Let’s examine the eligibility requirements for an HSA, as several key factors come into play. They include:
- A High-Deductible Health Plan: Participants must be enrolled in an HDHP that meets the IRS’s deductible and out-of-pocket maximum requirements.
- No Additional Coverage: Individuals cannot have other health coverage that isn’t an HDHP (with a few exceptions).
- Can’t Be Claimed as A Dependent: An individual cannot be claimed as a dependent on someone else’s tax return.
- No Medicare Coverage: Those enrolled in Medicare are not eligible to contribute to an HSA but may use unused funds from an HSA established prior to age 65 to pay for out-of-pocket qualified healthcare expenses.
While eligibility requirements set the stage for who can take advantage of an HSA, the way these accounts function within your business depends largely on its structure. Whether you’re running a corporation, partnership, or sole proprietorship, understanding how HSAs fit into different business types is essential for maximizing their benefits.
How HSAs Fit into Business Structures
The rules for HSAs and how they work within a company can vary depending on how your business is set up: (Your tax advisor should be consulted when creating, contributing and deducting HSA contributions.)
- C Corporations: Owners and employees can participate in the HSA program under similar rules, with tax benefits applying to both.
- S Corporations: The IRS has special rules for owners with more than a 2% stake in the company. However, employee contributions are still tax-deductible for the business. Owners may be able to deduct their HSA contributions on their personal tax returns and your tax advisor should be consulted.
- LLCs and Sole Proprietors: Owners are treated as self-employed individuals and can’t make pre-tax contributions through payroll but can deduct contributions on their personal tax returns.
For small business owners, HSAs offer unique advantages that go beyond compliance with these rules. They provide a cost-effective way to offer competitive benefits, making them particularly appealing for small businesses with limited budgets.
HSAs empower employees to manage their healthcare spending while fostering trust and loyalty—key factors in retaining talent.
In the short term, employees may benefit from savings on out-of-pocket medical expenses like doctor visits, vision and dental care, and prescriptions. Over time, HSAs double as a tax-advantaged savings tool, encouraging long-term financial wellness.
This balance of immediate and future benefits makes HSAs a smart investment for small business owners looking to build a healthy, engaged, and loyal team while managing costs effectively.
What are the Rules with HSAs?
HSAs come with a playbook of essential rules, all set by the IRS. These guidelines determine how much you can contribute, who’s eligible, and why they’re such a powerful tool for managing healthcare costs and building long-term savings. Understanding these nuances is the first step to unlocking the full potential of an HSA. Here’s what you need to know:
- Contribution Limits: In 2025, contributions are capped at $4,300 for individuals and $8,550 for families, with an additional $1,000 catch-up contribution for those aged 55 and older.
- Voluntary Offering: Employers are not required to offer HSAs, but providing access can be a competitive benefit.
- Owner vs. Employee Participation: Business owners can establish HSAs, but employee and owner participation rules depend on the business structure.
- Portability: HSAs belong to the individual, meaning employees keep their accounts even if they leave the company.
While these rules set the foundation for understanding HSAs, the real value lies in the benefits they offer. From tax advantages to employee satisfaction, HSAs can provide significant rewards for both employers and employees.
What Are The Benefits Of HSAs?
Benefits for Employers
- Lower Payroll Taxes: Employee contributions to HSAs are not subject to payroll taxes, reducing overall tax liability.
- Cost-Effective Benefit: HSAs paired with HDHPs may offer affordable options compared to traditional health plans.
- Employee Satisfaction: Offering HSAs can attract and retain employees, providing them with flexibility and control over healthcare spending.
Benefits for Employees
- Financial Flexibility: Employees can use HSA funds for immediate medical expenses or save them for future healthcare needs. Any unused funds may be carried over and used in future years.
- Tax Advantages: Contributions reduce taxable income, and withdrawals for qualified expenses are tax-free.
- Long-Term Planning: HSAs can act as a supplemental retirement savings tool, with funds rolling over year after year.
When employees understand how HSAs work, employers benefit from increased buy-in and loyalty. With less employee turnover, lower healthcare costs, and better overall health for your workforce, HSAs create a win-win situation for everyone involved.
Advanced Benefits Solutions Can Answer Your Questions
Are you ready to unlock the potential of HSAs? As a business owner, balancing cost control with meaningful employee benefits can feel overwhelming, but you don’t have to do it alone — we’re here to help!
Advanced Benefit Solutions can help you determine if HSAs are a good planning strategy for your business. We specialize in assisting employers with employee benefits while making it easy to stay compliant and handle all the paperwork.
Our expertise in setting up and managing HSAs ensures that you and your employees can take full advantage of this powerful planning tool. Let us help you create a benefits strategy that supports your business goals and empowers your team. Contact us today to learn more!
