If you’re a small business owner looking for ways to reduce costs without cutting corners on employee benefits, Health Savings Accounts (HSAs) may be one of the best-kept secrets.
When paired with a High-Deductible Health Plan (HDHP), HSAs can do more than just help employees save for medical expenses—they can actually lower your payroll taxes. Here’s how it works.
Quick Recap: What Is an HSA?
An HSA is a tax-advantaged savings account that allows employees (and employers) to set aside money for qualified medical expenses. To be eligible, employees must be enrolled in an HSA-compatible plan.
But here’s the part many business owners miss: HSA contributions made through payroll reduce your payroll tax burden.
The Payroll Tax Advantage Explained
When an employee contributes to their HSA through payroll deductions, those contributions:
- Lower the employee’s gross taxable income
- Lower the employer’s payroll tax obligation
Specifically, the business saves 7.65% on every dollar contributed (that’s the employer’s portion of FICA taxes—Social Security and Medicare).
Example: Let’s Do the Math
Let’s say you have 5 employees, and each contributes $3,000 to their HSA via payroll over the year:
- Total contributions = $15,000
- Payroll tax savings = $15,000 × 7.65% = $1,147
That’s over a thousand dollars in tax savings, and it scales with participation.
And if you choose to contribute to employee HSAs as the employer? Those contributions are 100% tax-deductible as a business expense.
A Benefit That Works for Everyone
Offering an HSA-compatible health plan with payroll deduction is a win-win:
For Your Business:
- Lower payroll tax burden
- Deductible employer contributions
- Competitive benefits with lower premium costs
For Your Employees:
- Lower taxable income
- Triple tax savings on contributions, growth, and withdrawals
- A way to build long-term health savings
Common Use Case: Replacing or Enhancing Group Coverage
Many small businesses choose HSA-qualified HDHPs as a cost-effective alternative to expensive traditional group plans. You can also pair an HSA with an ICHRA (Individual Coverage Health Reimbursement Arrangement) for even more flexibility.
LegUp Health Can Help
At LegUp Health, we specialize in helping Utah-based small businesses find smarter, more flexible health insurance solutions including HSA-compatible options. We’ll show you how to structure your plan to maximize savings for you and your team while still providing top-notch benefits.
Want to see how much your business could save with HSAs? Schedule a free benefits consultation with our team today.
