Why some business owners prefer individual HSAs

Industry Observer with Green Krist CPA PLLC 34463

When enacted, the Affordable Care Act (ACA) eliminated most small business health plans that reimbursed individually purchased health insurance. Consequently, many small business owners chose health savings accounts (HSAs) or opted to provide no health coverage at all.

As of 2022, over 35 million HSAs were active, with assets amounting to $104 billion. The Devenir survey expects this to increase to 43 million accounts with $150 billion in assets by 2025.

HSA basics:

  • To open an HSA, you must have high-deductible health insurance.
  • 2023 contribution limits are $3,850 for individuals and $7,750 for families. These limits increase slightly in 2024.
  • If you’re 55 or older by the end of the year, you can contribute an extra $1,000.
  • HSAs come with substantial tax benefits, including deductible contributions, tax-free earnings, and tax-free withdrawals for qualified health expenses.

Monies taken from HSAs are tax-free when used for qualified medical expenses. If you don’t use the funds for medical expenses, they grow. Once you reach Medicare age,

  • you can withdraw the funds and pay taxes or
  • use the funds tax-free for medical expenses.

You generally cannot make HSA contributions if you have a non-high-deductible health plan that overlaps with the high-deductible plan. Similarly, you cannot contribute to an HSA and a general-purpose healthcare flexible spending account (FSA) in the same year.

HSAs are similar to IRAs. They are trust or custodial accounts you set up at banks, insurance companies, or brokerage firms. The purpose of your HSA is solely to pay your qualified medical expenses. Like IRAs, HSAs can offer various investment options, though some trustees might limit choices to more conservative options.

The benefits of HSAs have grown significantly in recent years, making them a mainstream and advantageous choice for many. Given their tax advantages and flexibility, the HSA could be a good fit for you as a business owner.

Green Krist, CPA  specializes in assisting taxpayers with IRS and North Carolina Department of Revenue issues in the greater Raleigh, North Carolina area.

Comments (3)

Wayne Martin
Wayne M Martin - Chicago, IL
Real Estate Broker - Retired

Good morning Kelly. If the government is involved in helping you it is always complicated and professional help is necessary. Enjoy your day. 

Oct 08, 2023 05:14 AM
Kelly Green-Krist

Government likes to make things complicated!

Oct 09, 2023 05:29 AM
Charles Ross - eXp Realty LLC
eXp Realty LLC Salina Group - Salina, KS
Love To Help People

Excellent post.Thank you for sharing. Have a wonderful day and a blessed week.

Oct 08, 2023 05:45 AM
Bill Salvatore - East Valley
Arizona Elite Properties - Chandler, AZ
Realtor - 602-999-0952 / em: golfArizona@cox.net

Sounds like a wonderful way to help a small business and the employee. Bill 

Oct 08, 2023 07:29 AM