Tax-advantaged employer plan that reimburses employee medical expenses.

Tax-advantaged employer plan that reimburses employee medical expenses.

Tax-advantaged employer plan that reimburses employee medical expenses.

What are some
advantages to it?

• HSAs make an employer’s benefits package more attractive by helping employees pay out-of-pocket medical expenses in a tax- advantaged way.
• Employer contributions to employees’ HSAs are generally deductible business expenses.
• All compliant HSA contributions are tax-exempt for the employee.

• No federal income tax or employment tax on contributions.
• Tax-free distributions for qualified medical expenses.
• Employee can draw on the account for medical expenses before funds are placed in it.

• No federal income tax or employment tax on contributions.
• Tax-free distributions for qualified medical expenses.
• Funds can be carried over from year to year at employer’s discretion.

Employees must be covered under a high deductible health plan (HDHP) to contribute to or establish an HSA. For plan years beginning on or after Jan. 1, 2025, an HDHP is a plan with:

• A minimum deductible of $1,650 for self-only coverage and $3,300 for family coverage ($1,700 and $3,400, respectively, for plan years beginning in 2026); and
• A maximum out-of- pocket expense limit of $8,300 for self- only coverage and $16,600 for family coverage ($8,500 and $17,000, respectively, for plan years beginning in 2026).

In addition, employees generally must not be:

• Enrolled in any other plan but the HDHP
• Enrolled in Medicare; or
• Eligible to be claimed as a tax dependent.

Those enrolled in non- FSA group medical coverage and eligible under the rules of the plan, subject to the Section 105(h) and 125 nondiscrimination rules.

Those enrolled in non- HRA group medical coverage and eligible under the rules of the plan, subject to the Section 105(h) nondiscrimination rules.

For 2025, the limit on contributions for individuals with self- only HDHP coverage is $4,300 ($4,400 for 2026). For individuals with family HDHP coverage, the limit is $8,550 ($8,750 for 2026). These limits are $1,000 higher for individuals age 55 or older at any time during the year.

For plan years beginning in 2025, employees may contribute up to $3,300. The limit for plan years beginning in 2026 has not been released yet.

Generally no, but employers may:

• Allow employees to carry over up to $660 of unused funds for plan years beginning in 2025 to use in the following year; or
• Provide a “grace period” of 2.5 months after the end of the plan year for employees to use the money in the account.

If contributing to employees’ HSAs through a cafeteria plan, the employer must satisfy certain cafeteria plan nondiscrimination rules. All contributions to employees’ HSAs outside of a cafeteria plan must be made on a comparable basis to all comparable participating employees. Comparable contributions must be either:

• The same amount; or
• The same percentage of the annual deductible limit under the HDHP covering the employees.

Comparable participating employees:

• Are covered by an HDHP offered by the employer;
• Are eligible to establish an HSA;
• Have the same category of coverage (self- only or family coverage); and
• Have the same category of employment (generally part- time or full-time).

1. Have an official written plan document.
2. Distribute a Summary Plan Description (SPD) within 90 days of the employee becoming a plan participant.
3. Offer the health FSA as part of a cafeteria plan.
4. Offer employees traditional group health coverage.
5. Meet the Section 105(h) and 125 nondiscrimination rules.
6. Comply with the IRS’ rules on mid-year election changes.
7. Set the maximum benefit amount for each employee so that it does not exceed:
8. • Two Times the employee’s health FSA salary reduction election for the year; or
   • If greater, $500 plus the amount of the employee’s health FSA salary reduction election for the year
9. Substantiate all reimbursement claims.
10. Annually pay PCORI fees by July 31, if applicable.

1. Have an official written plan document.
2. Distribute a Summary Plan Description (SPD) within 90 days of the employee becoming a plan participant.
3. Meet the Section 105(h) nondiscrimination requirements.
4. Offer employees traditional group health coverage.
5. Substantiate all reimbursement claims.
6. Annually pay PCORI fees by July 31, if applicable.

Yes. If an employee elects COBRA coverage, his or her HRA must:

• Continue at the maximum reimbursement amount applicable at the time of the COBRA qualifying event; and
• Increase at the same time and by the same increment that HRA reimbursement amounts are increased for similarly situated non-COBRA HRA participants.