Health savings accounts (HSAs) were introduced in 2003 as a tax-advantaged way to save money toward future health expenses. Although they’re opened, owned, and maintained by individuals, they’re also a valuable component of a comprehensive health benefits package.
Many businesses aren’t sure where to start when offering an HSA benefit, though.
In this post, we’ll discuss how an HSA works, the benefits of contributing to employees’ HSAs, how to do so, and which rules you need to follow if you offer an HSA with a health reimbursement arrangement (HRA).
Let’s get started.
A health savings account (HSA) is a financial account established by an individual or family. The account’s funds can be used to pay for qualified medical expenses tax-free.
HSAs are similar to flexible spending accounts (FSAs) but with some major tax differences. With an HSA, you can:
To contribute to an HSA, individuals must be covered by an HSA-qualified high deductible health plan (HDHP).
Generally, HSA contributions are made along with regular pay. If an individual is making a contribution, they can set up a pre-tax withdrawal from their paycheck that will be deposited into the HSA. Businesses may do the same.
Both individuals and businesses must abide by the HSA’s annual contribution limits. For 2025, single account holders can contribute up to $4,300 and account holders with a family can contribute up to $8,550. There is also a catch-up contribution available of $1,000 for those over age 55.
Although many businesses think of health benefits as simply a group health insurance policy or a stand-alone health reimbursement arrangement (HRA), employees often have a more expansive view. Increasingly, that view includes HSA contributions.
Today, more than 25 million Americans have an HSA account and they appreciate any additional contributions they receive.
HSAs are also one of the most effective ways small business owners can maximize their tax benefits. All contributions to an employee’s HSA count as a federal income tax deduction for your business. Additionally, the contributions your employees make are done before tax, meaning you won’t pay payroll taxes (including FICA and unemployment taxes) on that amount.
And, of course, all amounts your employees pay into their HSA are free of income tax.
HSAs are especially useful when combined with an HRA. HRAs like the QSEHRA are subject to federal limits—in 2025, the QSEHRA has limits of $6,350 for single employees and $12,800 for employees with a family. Offering both an HSA and a QSEHRA is a great way to maximize tax-free compensation to employees. It also ensures that money goes toward one of employees’ heaviest financial burdens.
Finally, an HSA benefit can help your business with recruiting and retention, as many of your current and prospective employees will have an account and appreciate the contribution.
Logistically, contributing to employees’ HSAs is simple. Here’s a five-step guide:
An HSA can be used alongside a health reimbursement arrangement (HRA), but the HRA must be adjusted to accommodate the HSA.
If you choose to offer both an HRA and an HSA (and you should), you’ll need to make these adjustments.
Specifically, you’ll need to ensure that all employees with an HSA receive no coverage from the HRA until they meet the HDHP’s annual deductible. There are exceptions for four categories:
The easiest way to ensure compatibility is to convert the HRA into a limited-purpose HRA. With a limited-purpose HRA, your employee can only be reimbursed through the HRA for expenses that fall into the five stated categories.
Offering HSA contributions is one of the easiest and most effective ways businesses can improve their health benefits offering.
HSA contributions deliver value to the employee, provide tax benefits for the business, and help businesses recruit and retain valuable workers. What’s more, setting up an HSA contribution and maintaining it is simple.