By Tom Torre
For employers that have employees who take advantage of a high-deductible health plan (HDHP) paired with a health savings account (HSA), two important HSA updates have recently been announced by the IRS that potentially impact both employees and employers. It pays—literally and figuratively—for employers to proactively communicate these updates to their employees to achieve optimal HSA program success.
2020 HSA Contribution Deadline Extended to May 17, 2021
First, the deadline to make HSA contributions for 2020 has been extended until May 17, 2021 to align with the amended tax filing deadline on the same day. That means there’s even more time for employees—and employers—to maximize the unique tax savings HSAs provide to both businesses and their employees.
Remember, HSAs offer a “triple tax advantage,” meaning:
- HSA contributions aren’t taxed
- HSA funds grow tax-free
- All withdrawals for HSA-qualified expenses are tax-free
On top of saving employees money in more ways than one, HSAs also offer significant tax savings opportunities to employers.
For employers who set up an employer-sponsored HSA program as part of their benefit offering and provide their employees with an easy way to make pretax HSA contributions through payroll deductions, they lower their own FICA tax liability in the process and directly save the 7.65% FICA tax on any pretax employee contributions made through their HSA program.
The IRS 2020 contribution extension provides the perfect opportunity for employers to remind employees to check their year-to-date HSA contributions for 2020 to ensure they’re not leaving savings on the table. Because when it comes to HSAs—the more an employee contributes, the more they save. Contributing the maximum HSA contribution limit to their account each year means they’re maximizing their tax savings upfront, as well as their ability to have the most tax-free money added to their HSA to save and invest for the long term—not to mention optimizing FICA tax savings for their employer.
|2020 Maximum HSA Contribution Limits|
|Additional Catch-Up for Age 55+||$1,000 on top of individual or family coverage limit|
If employees still have room to contribute for 2020, now is the time to encourage them to take action. Most often, they can either adjust their current contributions or make a one-time contribution to their account. They just need to be sure they work with their HSA provider to ensure that the contributions are correctly attributed to 2020 prior to the May 17, 2021 deadline.
Expenses for Preventing the Spread of COVID-19 Now HSA-Eligible
In addition to the extended 2020 HSA contribution deadline, the IRS also recently announced important updates to HSA-eligible expenses.
When the CARES Act was signed into law in late March of 2020, it offered some key expansions on how HSA accountholders can use their HSA throughout the coronavirus pandemic, and potentially beyond. This included immediate coverage for COVID-19 testing, care and vaccinations, along with coverage for telehealth and virtual healthcare services. Over-the-counter drugs and medical products, including feminine care products, were also added as HSA-eligible expenses—previously a prescription was required for any of those expenses to qualify.
Now, in addition to those expansions, the IRS has announced that personal protective equipment, including masks, hand sanitizer and sanitizing wipes, is also an HSA-eligible expense if purchased for the primary purpose of preventing the spread of COVID-19. This update applies to expenses for HSA accountholders, as well their spouse and any tax dependents, and is retroactive to January 1, 2020. The full IRS Announcement 2021-7 provides complete details on this eligible expense expansion.
Communicating these important HSA updates out to employees will help continue to drive HSA education and make sure employees with HSAs don’t miss out on taking advantage of the extended contribution deadline and these newly HSA-eligible expenses if they choose to.
Don’t Forget to Help Employees with Contribution Deposit Error Fixes Prior to Tax Day
The unique nature of the past year has caused confusion surrounding benefits in general, as well as specific issues with HSAs, including an uptick in employee contribution errors.
With the recent extension for 2020 HSA contributions pushed to May 17, 2021, employers have even more time to help employees resolve any 2020 contribution deposit errors prior to Tax Day. Most often, this process requires special steps to be taken by the HSA provider, so employers should reach out as early as possible when errors are identified so they can work directly with their HSA provider to resolve the issues.
Having the Right HSA Partner is Critical to Maximizing HSA Benefits
Clearly, the HSA landscape continues to evolve quite rapidly, which makes the decision of which HSA partner an employer chooses that much more critical.
Not all HSA providers are created equal, and only a handful actually specialize in HSAs.
From fees, ease of implementation, enrollment and ongoing administration, to employer and employee communications and resources, support and overall ease of HSA platform use, employers are well-served to find an HSA provider that has a proven track record of positive results and makes it easy for everyone to maximize HSA benefits, regardless of level of HSA knowledge.
With the right HSA partnership, employers can optimize their HSA program and stay on the leading edge while better engaging their employees, ensuring everyone stays informed and boosting win-win HSA benefits.
Tom Torre is CEO and co-founder of Bend Financial. For nearly 20 years, Tom has led organizations in the consumer-directed healthcare space. With Bend, he leads a dedicated team helping individuals, employers, financial institutions and other partners leverage a next-generation HSA platform that improves financial wellness and simplifies healthcare saving.