Thinking about HSAs for Your Small Business in 2024

Health Savings Accounts, or HSAs, have been around for nearly 20 years (they debuted in December 2003), and have grown in popularity. Today, assets held in the more than 33 million accounts
exceed $100 billion
. Its projected that the number of HSAs will grow to
43 million by the end of 2025
. Many businesses have adopted HSAs as their only health care option or one of the choices for employees. For small businesses, HSAs are a good way to ensure that employees have health coverage without busting the budget. While theres plenty of time to make your companys health care arrangements for 2024, its not too early to begin thinking about it.
Basics
In order to contribute to HSAs, the employee must be covered by a high-deductible health plan (HDHP) and cannot be on Medicare. An HDHP, as the name implies, covers costs other than certain preventive care after a deductible has been met, so premiums are much lower than traditional group health plans. From a tax perspective, an HDHP is health insurance that has a minimum annual deductible and a maximum out-of-pocket limit. The following chart shows the parameters for 2023 and what theyll be in 2024 so you can plan now.
Type of coverage
$13,500
$16,100
There is a cap on what can be contributed annually to HSAs. For 2023, the maximum amount is $3,850 for self-only coverage and $7,750 for family coverage. For 2024, the maximum amount will increase to $4,150 for self-only coverage and $8,300 for family coverage. If the employee is 55 or older, an additional $1,000 is permitted. But spouses must have separate HSAs for both to make the additional contribution.
Employees handle their own HSAs; employers arent responsible for them. This means that its up to employees to decide whether, when, and for what to take distributions. Those for qualified medical expenses are tax free; those for non-qualified expenses are subject to a 20% penalty unless the owner is age 65 or older.
Handling HSAs for Your Staff
The law is very flexible when it comes to handling HSAs. Here are some ways to do it?
The employer offers an HDHP and makes no contributions to employees HSAs; they contribute what they want and claim a tax deduction on their personal federal income tax returns, whether or not they itemize other deductions.
The employer offers an HDHP and makes a partial contribution to employees HSAs. Sources show that in 2022, the
average employer contribution was $869 per employee
. Employer contributions must be made on a nondiscriminatory basis. The employer deducts the contributions; employees are not taxed on them and there are no payroll taxes on contributions.
The employer offers an HDHP and makes a full contribution up to the annual limit (explained above). This could be helpful in a small family-owned business, assuming the company can afford to make the contributions. One estimate I saw years ago (and cant find the source now) said that doing this was 40% less costly than paying for traditional group health coverage.
The employer has no HDHP but makes a contribution to employees HSAs if they are eligible. This means they are covered by an HDHP through another source. This can be any plan through the government Marketplace that meets the HDHP definition above (the plans vary from state to state or from the federal exchange). Employer contributions to
HSAs do not get reported on employees W-2s
.
Pending legislation to improve HSAs
Because of their popularity, and the potential benefit of encouraging savings for health care purposes, there have been various proposals in Congress to expand the use of HSAs. Two recent proposals worth noting:
The Health Savings Act of 2023 (
) would allow contributions for Medicare-eligible individuals who are age 65 or older if their entitlement to Medicare benefits is limited to hospital insurance benefits under Medicare Part A.
Conclusion
In the coming months, decide whether you want to offer HSAs and the extent of contributions youll make. Monitor developments in Congress to note changes in the rules for HSAs. Discuss all of this with your CPA or other adviser to factor in the cost when preparing your 2024 budget. You can find more details about HSAs in
IRS Publication 969
(it doesnt have the 2023 or 2024 amounts).
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