What is a Health Savings Account (HSA)?

A Health Savings Account (HSA) is a tax-favored savings account that, when paired with a high-deductible health plan (HDHP), can be used to help your employees pay for qualifying medical expenses. An HSA-compatible HDHP typically has lower monthly premiums than lower-deductible health insurance plans, and contributions to an HSA may be made on a pre-tax basis, up to annual IRS limits.

What is the HSA cost to the employer?

The HAS cost to the employer depends on whether the employer or employee contributes to the account. There are several benefits for either party contributing to the HSA.

• For employees: Employees use pre-tax income to contribute to their HAS to cover their out-of-pocket costs.  An HSA is connected to the employee, not the employer. Unused money in employees’ accounts can roll over year to year, potentially growing over time, and can earn tax-free interest. Employees can also invest their HSA funds to prepare for increased out-of-pocket medical costs in the future. In this case, the HSA works in a similar fashion to an IRA, with a growing balance over time due to earnings from the investment as well as additional contributions by the individual.
• For employers: All employer contributions to employee HSAs can be used as an income tax deduction for the small business. Employers also do not pay payroll taxes on the pre-tax contributions of employees. The lower premiums of an HSA-compatible HDHP for employees may mean reduced cost-sharing for the employer.

It is important to know that not all HDHPs are HSA-eligible, so be sure to select an HSA that works for the needs of your small business. eHealth can help you be certain you are selecting an HSA-eligible HDHP, and show you all of your small business insurance options. We will provide you a list of small business health plans available from carriers that work with eHealth and let you know in the details section of the plans you select whether they are HSA-eligible plans.

Overall, an HSA may be an affordable, tax-favorable option to consider for both small business owners and their employees.

Interest in HSA-eligible plans among businesses

HSAs have become more common in recent years. A 2023 Health Savings Account Survey found that many employers find it difficult to encourage employees to open a Health Savings Account (HSA) after they enroll in a qualifying health plan, with half reporting this as a challenge. In response, approximately 47% of organizations have started automatically enrolling eligible employees into HSAs, which marks an increase of over 30% in the past two years.

Can you set up and participate in an HSA for small businesses?

As a business owner you may be wondering if you qualify for an HSA. That depends on the nature of your business and your health insurance. An essential prerequisite to setting up and contributing to a small business HSA is your health insurance must be an HSA-eligible HDHP. There are additional rules specific to the type of small business you operate:

• Sole Proprietorships and LLCs: If you are self-employed, you may be eligible to set-up an HSA if you are not a dependent on someone else’s tax returns; you may be a dependent on your spouse’s HSA-eligible group HDHP. You can make contributions on an after-tax basis and deduct these expenses on a Schedule C when filing taxes.
  If you have employees, the small business HSA rules permit you to set up what is commonly called a cafeteria or 125 plan. By doing so, your qualified employees can make pre-tax contributions to the HSA. As the business owner, your contributions to the HSA for small business will be with after-tax funds.
• S Corp and C Corp: If you are the owner of an S Corp or a C Corp, you can set up and contribute to an HSA; however, there are some restrictions. An S Corp can contribute to an owner’s HSA but not on a pre-tax basis. In this case, IRS considers contributions part of income. On the other hand, if you are an owner of a C Corp, you can make pre-tax contributions to your HSA and your employees’ HSA.

Remember, all employer and employee contributions to an HSA must comply with current IRS regulations.

How to set up an HSA for small businesses: Step by Step 

Setting up an HSA for your small business employees is a straightforward process. Here is an overview of the required steps.

1. Determine plan eligibility and contributions – First, find out if your employees have HSAs though eligible high deductible health plans, either provided by the business or purchased individually. Then, decide how much employees will contribute to their HSAs, as well as whether your business will contribute to their accounts.
2. Create a Section 125 plan – A section 125 cafeteria plan allows employees and employers to contribute tax-free dollars to the HSA. The plan can be made available to employees, spouses, and dependents. Either your business or a payroll service can set up one of these plans.
3. Manage contributions and tax documentation – After implementing the Section 125 plan, employees can send HSA payments to their custodian or bank-administered account. As an employer, you are required to send your payments to employees’ accounts (if you decide to contribute to their HSAs). Your business is also required to provide the appropriate tax documents, including W-2s, to your employees at the end of the tax year.

If you choose to offer an HSA offered by one of the insurers working with us, eHealth will be there to help you manage your small business HSA. Keep in mind that both employees and employers must adhere to annual HSA contribution limits. For 2025, the maximum annual Health Savings Account (HSA) contribution is set at $4,300 for individuals with self-only coverage and $8,550 for those with family coverage. High Deductible Health Plans (HDHPs) have a maximum annual out-of-pocket expense of $8,300 for self-only coverage and $16,600 for family coverage. Additionally, the minimum deductible amounts for HSA-compatible HDHPs are $1,650 for self-only and $3,300 for family coverage, ensuring that these plans provide both flexibility and significant coverage for larger medical expenses. See the table below:

Year	Self-Only Coverage	Family Coverage	Catch-Up Contributions*
2024	$4,150	$8,300	$1,000
2025	$4,300	$8,550	$1,000

*Employees age 55 and older can put in an extra $1,000 in “catch up” contributions at the end of the year.

Overall, offering an HSA can be an affordable way to supplement the health insurance plans of your employees while also providing tax advantages for your business.

eHealth makes it easy to find HSA-compatible health insurance coverage for your business by allowing you to clearly identify and compare different group plans. Learn more about your options for small business health insurance by visiting eHealth.com or speaking with our licensed health insurance agents.

This article is for general information and may not be updated after publication. Consult your own tax, accounting, or legal advisor instead of relying on this article as tax, accounting, or legal advice.