How Small Businesses Can Make the Most of HSAs

What is an HSA, and how does it work for small businesses?

How do HSAs support small business growth?

For many small businesses, competitive employee benefits play a vital role in attracting and keeping top talent. They can also help build a positive company culture and support your long-term growth goals for the organization.

As mentioned above, HSAs can be a cost-effective, appealing addition to a small business’s benefits package, offering several key advantages:

• Lower benefit costs: HSAs pair with high-deductible health plans, which often have lower premiums. This can help reduce monthly costs for the business and the employee.
• Tax savings: Employer contributions to HSAs are generally tax deductible, and both employer and employee contributions can minimize payroll taxes.
• Flexible spending: Employees can use HSA funds on a wide range of qualified healthcare expenses. For the full list of approved medical and dental expenses, review IRS Publication 502.
• Long-term value: Balances carry over year to year, and funds can grow with investment options.

HSA tax advantages for employers

HSA’s many tax benefits can help small businesses manage costs. Employer contributions are typically tax deductible, as these contributions can also reduce payroll taxes for both the business and the employee. Employer contributions made through a Section 125 plan, also known as a cafeteria plan, are not subject to Social Security and Medicare.

Because contributions are flexible, small businesses can create a custom approach that fits their specific budget. Some employers contribute a flat amount per year, while others match a portion of employee contributions. Any approach that supports your team can help strengthen your overall rewards package.

How HSAs help retain and recruit employees

Small businesses often compete with larger companies that have more expansive benefits packages. HSAs can help bridge that gap by giving employees more control over their healthcare spending while simultaneously offering long-term savings benefits.

A strong HSA offering can help employees by supporting financial wellness, building confidence around healthcare expenses and providing a meaningful, portable benefit that they can keep even if they change jobs.

These advantages can help your business create a positive workplace culture and ultimately stand out when looking to recruit new team members.

How to set up an HSA for your small business

If your business is considering offering HSAs, the first step is selecting a high-deductible health plan that meets IRS requirements. The IRS sets annual limits on contributions, as well as minimum deductibles and maximum out-of-pocket amounts. These are updated every year in IRS Publication 969 (last updated in 2024).

You should also check the Small Business Health Options Program (SHOP) to see if you qualify for the Small Business Care Tax Credit. This can cover up to 50% of the costs of your employee’s premiums (35% for nonprofit employees).

Once you select a plan, you can work directly with an HSA provider like Associated Bank to set up accounts for your employees. Associated Bank provides digital tools that make contributions and account management easier for both employers and employees.

Here are more tips for getting the most value from your health savings account program:

• Provide clear information during open enrollment.
• Offer simple and predictable employer contributions.
• Share practical advice for using HSAs for everyday health expenses and long-term healthcare planning.

Educating employees on the benefits of HSAs and how they work makes it more likely that they’ll use them—and use them effectively.

How small business employees can use HSAs

Employees can use HSA funds for qualified medical expenses like doctor visits, prescription medications, dental care, vision care and many over-the-counter items. Consult IRS Publication 502 for a full list of approved expenses. Money used for qualified HSA expenses is tax free, further helping employees make the most of their healthcare dollars.

HSA balances also roll over every year. This makes the account helpful for long-term saving, especially for medical costs that may come later in life. Employees who stay enrolled in an HDHP can continue contributing up to the IRS limits each year. However, HSA contributions are restricted once you enroll in Medicare (typically at age 65).

Supporting long-term financial wellness through HSAs

While HSAs are mostly used for day-to-day healthcare spending, they can also be part of a strong retirement planning strategy. Once an accountholder turns 65, they can use HSA funds for non-medical expenses, penalty-free, and qualifying Medicare expenses remain tax-free. Money withdrawn from the HSA after age 65 that isn’t used for qualifying medical expenses will be taxed like regular income, similar to a traditional IRA, but will no longer face the additional withdrawal penalty.

This dual use and flexibility of an HSA can help employees build financial security over time, as well as encourage those who are unsure about contributing to an HSA. As a small business, offering benefits that support long-term planning for your employees can help create a strong sense of community and loyalty among your team.

How to talk with employees about HSAs

Clear communication is one of the most important aspects of a successful HSA program at any organization. Many employees may be unfamiliar with HSAs or how they work. Providing simple resources can help them understand the benefits and feel confident about enrolling.

Here are a few helpful strategies when it comes to discussing HSAs with your employees:

• Share examples of qualified expenses.
• Explain how contributions lower taxable income.
• Highlight the value of HSA rollover and long-term growth.
• Provide quick guides during onboarding and open enrollment.
• Encourage employees to ask questions about the program.

Keeping your team informed can help them make the most of their HSA. Visit our page for more information on Associated Bank’s HSA options, FAQs and scheduling an appointment with an advisor.