What is a Health Savings Account (HSA)?
A Simsbury Bank HSA is a premium interest tax-advantaged account that allows individuals to save up and pay for qualified medical expenses for the HSA owner, spouse and/or dependents. HSAs are paired with certain insurance plans that meet IRS qualifications; these plans are called high deductible health plans, or HDHPs.
Why should you recommend a Simsbury Bank HSA to your employees?
Simsbury Bank is a highly respected local financial institution known for its commitment to customer service and a complete array of product offerings. Thousands of residents in the Farmington Valley and central Connecti-cut are customers of Simsbury Bank and many prefer to do all their banking with a single institution because they find us convenient and they appreciate the advice we provide. For our customers, the ability to use their own bank for their new HSA is an important consideration in whether to enroll in an HSA plan. Participants in an HSA who are not already Simsbury Bank customers may prefer to be given the option to use a bank near their home or office. And, for many that bank is Simsbury Bank.
Who is eligible for an HSA?
Any individual, including those self-employed, enrolled in an HDHP is eligible. HDHPs are insurance plans that have the followingcharacteristics:
These amounts are adjusted by the IRS for cost-of-living increases. Your company’s health insurance carrier or agent/broker can tell you if any of the plans available to you qualify.
Employees who have other health insurance, are on Medicare, or are a dependent on someone else's tax return are not eligible.
* Some insurers do not include preventive health care in the deductible.
** The limit for maximum out-of-pocket expenses includes deductibles, co-payments, and certain other items, but not premiums.
Why offer an HSA to your employees?
Because employers usually share the cost of health insurance with their employees, and because HDHP premiums are usually significantly less expensive than other plans and offer tax advantages, there are important reasons for an employer to offer, and for an employee to consider, an HDHP and an HSA. By offering a plan that can be used with an HSA, you as an employer are giving your employees a powerful tool to control their own medical expenses and also provide them with the ability to supplement other retirement plans. The benefits of an HSA to your employees are:
- Contributions to their HSA are tax deductible.
- Employer contributions to HSAs are not counted as income to employees.
- Earnings are tax-deferred.
- Distributions are tax free if used for qualified medical expenses.†
- Balances are carried over from one tax year to the next.
- Assets in HSAs are portable.
- Balances can be used as a retirement savings account.
- Beneficiaries may be named for HSAs.
Where do employees use an HSA?
Employees use the funds in their HSA to pay for medical expenses up to their plan’s deductible, plus other qualified expenses†, for themselves and their dependents (even if they are not on your health insurance plan). Examples of expenses are:
Doctor visits, diagnostic tests, procedures, prescriptions, transportation to get to
medical care, some dental and vision care
- Qualified long term care insurance premiums
- Health plan premiums when unemployed
- Health plan premiums while on COBRA
- Some health insurance after age 65
- Any reason after age 65 (subject to tax)
Expenses paid with HSA funds can not also be claimed as deductions on their income tax forms. If HSA assets are used for nonqualified expenses, those amounts are subject to taxation and a 20% penalty unless the HSA owner is age 65 or older, is deceased or is disabled.
† HSA funds may not be used for over-the-counter medication unless prescribed by a physician.
How do employees use an HSA?
Employees open a high interest Simsbury Bank HSA Checking Account and receive a debit card, checks or both.†† The employee may deposit contributions into this account. Some employers choose to provide additional contributions to their employees’ HSA. When paying for qualified medical expenses, the employee simply:
- uses a debit car
- writes a check
- withdraws funds from an ATM
- makes an online bill payment.
An extra debit card free of charge is available for a spouse.
For their tax records, employees should save all of their receipts from providers.
We also offer an HSA CD so that as your employees’ HSA balances grow, or they choose to roll over funds from another HSA plan, they can benefit from premium longer-term interest rates. To enroll in an HSA CD, they generally need to have a Simsbury Bank HSA Checking Account. However, if an employee is no longer eligible to actively make HSA contributions, but wishes to rollover existing funds, they are not required to have an HSA Checking Account and may open a “stand-alone“ HSA CD.
Some insurance carriers offer HSA account options within their plans. Employers and employees are not required to use those institutions. You and your employees can get all of the tax and other benefits of an HSA with Simsbury Bank.
How is the HSA funded?
There are several ways to fund your HSA.
- Employers may allow direct deposit of payroll deductions, which may be changed periodically, into the account.
- Employers may make additional “direct deposit“ contributions for their employees.
- Employees may make lump-sum deposits to their accounts. This is done at a Simsbury Bank branch using an HSA Contribution Form.
- Money may be rolled over from certain medical savings accounts called Archer accounts.
- Funds may be moved from flexible savings accounts (FSAs) or health reimbursement arrangements (HRAs) to your HSA.
- Individual Retirement Account (IRA) assets can be moved to an HSA, with some limitations.
How much can be contributed to the HSA?
Contribution limits depend on whom the employee chooses to cover with their health insurance plan and the employee’s age. The amounts will change with cost of living adjustments.
If an employee has attained age 55 in any year they may also contribute additional “catch-up“ amounts.
Regular and “catch-up“ contributions can come from any source, including payroll deductions, employer contributions, rollovers from other HSA accounts and transfers from other accounts, though certain forms may be required for contributions other than payroll deduction or employer contributions. Any employer contributions are counted toward the maximums allowed.
Some employers make contributions to their employees’ HSAs. How do I make these contributions?
Your company’s payroll provider will be able to assist you in setting up a contribution into employees’ HSA accounts electronically. The process can be automated so that the funds are deposited into your employees’ accounts with each payroll run or any other schedule of your choosing. Many employers choose to apportion the total of their annual contribution evenly during the year with each payroll processed in order to distribute the expense throughout the year. This also avoids front-loading a benefit to an employee who may leave during the year.
Employees would see two deposits into their HSA account – one from their own contribution, should they choose to make one, and the other from you as their employer. Employers can arrange with their payroll service to make group contributions automatically.
If an employer chooses to contribute toward their employees’ accounts, the employer can designate that the monies will be deposited to Simsbury Bank. To obtain this money, employees would need to open an account with Simsbury Bank. If an employee chooses to also have an additional HSA at another institution, it is the employee’s responsibility to move funds from their Simsbury Bank HSA to the other institution. An employer is not required to deposit its contributions at a bank of the employee’s choosing.
What are the premium interest rates?
Simsbury Bank offers premium interest rates along with its advice and service.
What are my costs to run a plan that includes an HSA?
There are no fees to the employer.
What does an HSA cost an employee?
There are no fees if the employees’ HSA Checking Account balance is $2,500 or more. If the employees’ HSA Checking balance is below $2,500, the first two years are free; thereafter there is a maintenance fee of $3.00 per month. There is no enrollment fee if you as an employer refer them to Simsbury Bank. Standard banking fees apply such as check re-ordering and stop payment service.
We also offer an HSA CD so that as your employees’ HSA balances grow, or they roll over funds from another HSA plan, they can benefit from premium longer-term interest rates. If they open an HSA CD there is a minimum balance of $500 and no annual or monthly fee. For customers who qualify for a “stand-alone“ HSA CD, there is an annual maintenance fee of $20 per year.
How do employees access information on their accounts?
Simsbury Bank provides monthly paper statements, Internet banking access and 24-hour telephone banking access. If employees have other Simsbury Bank accounts their new HSA accounts can be added to Simsbury Bank Online, our Internet banking service. They can use their current ID and password to view balances and transactions and they can even make online bill payments to service providers.
Does Simsbury Bank monitor HSA accounts so that the employer or employee does not exceed contribution limits?
Account owners are responsible for monitoring amounts deposited to their accounts.
How does the Bank handle mistaken distributions?
If an employee pays for a service whose cost is later adjusted downward, the money paid to the provider should be returned to the HSA. The employee should visit a Simsbury Bank branch and see a Personal Banker to make the re-deposit. A special form must be signed so that the re-deposit is not coded as a new deposit.
What employer reporting requirements are there?
Simsbury Bank provides complete reporting of contributions and distributions to the IRS and to HSA owners. HSAs require the following government reporting:
- Employers report contributions to employee accounts on a business tax return, as well as on employees’ Form W-2.
- HSA owners report contributions and distributions on their income tax returns.
- Simsbury Bank provides complete reporting of contributions and distributions to the IRS
and to HSA owners. In January of each year, HSA account owners receive a Form 1099- SA that totals the gross distributions for the previous tax year and in May a Form 5498 that totals the previous year’s contributions. These amounts are also reported to the IRS.
How do employees enroll?
Simsbury Bank offers fully qualified HSAs and can arrange site visits to your company to open HSA accounts for the convenience of your employees. Employees can also come to any Simsbury Bank branch and open an account on their own.*
How do I get more information about Simsbury Bank’s HSAs?
Simsbury Bank is a strong partner in bringing HSAs and their benefits to your company and your employees. Our highly trained advisors can help you with any questions you have about our HSAs. Find a branch.
Call Simsbury Bank today to learn how you can offer your employees this exciting account with premium interest rates and tax advantaged savings for their retirement!
Complete HSA information, including account limits and restrictions, can also be obtained at www.treas.gov.
* Simsbury Bank does not guarantee the Establishment Date of the HSA being the same as the date the participant enrolls in an HDHP. The Establishment Date will be the date the HSA is opened with Simsbury Bank. The IRS prohibits HSA funds to be used to pay for services obtained prior to the Establishment Date.
†† Purchases and other transactions made with this debit card are not covered under the FDIC’s Electronic Funds Transfer regulation (“Reg. E“). Reg. E provides consumers certain rights to contest electronic transactions that a consumer believes to be unauthorize including ATM and debit card transactions. Because Reg. E does not apply to HSAs and their associated debit cards, any transactions that a consumer reports as unauthorized will be investigated by Simsbury Bank on behalf of the consumer, but Simsbury Bank does not provide provisional credit during this process. Any credit Simsbury Bank receives as a result of the investigation will be credited to the customer.
HSA accounts are not permitted to be overdrawn. If an HSA account becomes overdrawn for any reason other than Bank error, the account no longer qualifies as an HSA. Any contributions and distributions made since the beginning of the year, and for the remainder of the year in which the overdrawn situation occurs, lose their HSA tax exempt status and will be treated as regular transactions. This provision includes any contribution an employer has made on an employee’s behalf.