The undervalued benefit of HSA programs employers and employees may be missing: FICA savings

Key Takeaways

• When employees contribute to an HSA via payroll deduction they can pay less FICA taxes, which is also then true for employers.
• Employers can optimize their HSA program design to better engage employees.
• Employers can use HSAs as part of a competitive benefits package intended to have a better chance of attracting and retaining talent.

Value in the numbers

As employers continue to look for ways to attract and retain top talent, many are increasingly enhancing their benefit offerings. With health benefit costs predicted to increase 5.8% in 2025,¹ it’s vital for employers to expand their current offerings. One way to do this is to consider including a Health Savings Account (HSA) as an option for eligible employees.

An HSA is a savings account that eligible employees can contribute to on a pre-tax basis, which can be used to pay for eligible medical, dental and vision expenses. If employees have a high-deductible health plan (HDHP), they are eligible for an HSA and can contribute annually up to the amount set by the IRS. HSA contribution limits for 2025 are $4,300 for self-only and $8,550 for family coverage.² Individuals age 55 and up can contribute an additional $1,000.

Health savings accounts are having a moment. Consider the numbers: at the mid-year point in 2024, the total amount held in health savings accounts grew to $137 billion in assets in almost 38 million accounts — an 18% increase in assets from 2023.³

Despite this continued growth and steady increase in consumer use, some employers may still question the value in offering an employer-sponsored HSA for their employees. An HSA is an individually owned account that employees can contribute to on a pre-tax basis, thereby reducing their taxable income. They are available to anyone enrolled in a high deductible health care plan. Yet in 2024, more than 75% of companies that offered health benefits did not offer an HSA.⁴ So, what gives? Part of the issue is the unknown. Therefore, it’s essential for employers to understand and be educated on the tax advantages available to both employees and employers.

Potential savings that help benefit employees and employers

HSAs are considered a unique savings vehicle that offer employees and employers notable tax advantages including the opportunity to pay less FICA taxes. FICA is a U.S. federal payroll tax paid by both employers and employees and it helps fund Social Security and Medicare. Currently, employers and employees pay 7.65% FICA tax each on wages. If the employees FICA responsibility is lowered, so is the employers.⁵

Additionally, when employees contribute to an HSA with pre-tax dollars, employers pay less Federal Unemployment Tax Act (FUTA) payroll taxes. Many employers also contribute a set amount of dollars to their employees’ HSA accounts, which is considered a business expense and not subject to taxes as well.⁶

HSA: Beyond monetary benefits

Tax savings are great, but beyond that, employers who set up a well-planned HSA program also provide employees with an account that can be a tool to help them better control their short and long-term health care costs and invest in their future. For example, 65% of people with an HSA price shop for health care products and services, compared to 58% of those without one.⁷

This offers the potential to make the HSA a powerful recruitment and retention tool, particularly when employers also offer to make contributions to employee HSAs themselves. In fact, 40% of employers say they believe workers leave their job to find employment that offers better benefits, while only a little more than half (54%) of American workers report being content with the benefits their current employer offers.⁸ Implementing a platform that helps streamline benefits offerings through easy integrations and automations, along with bringing in a provider that understands the many nuances, may help alleviate the administration burden on employees and employers in the long run.

What to consider when choosing an HSA provider

A few key things employers may wish to consider when shopping around for the most optimal vendor include:

• Fees
• Program implementation
• Enrollment
• Administration
• Employer and employee resources
• Support and overall ease of use

Keep these in mind when doing your research and be sure to ask pointed questions regarding all of them. When employers offer the optimal HSA to their employees, they not only help combat rising health costs, but can also realize tax savings while offering greater depth and flexibility in their benefits package.
 

Want to learn more about Voya’s Health Account Solution offerings? Connect with us or contact your Voya representative.

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This article has been updated from the original version which was originally published on April 26, 2023.