Ever-rising insurance premiums and limited healthcare options are forcing more and more business owners to shift from defined benefit to defined contribution plans to retain a sense of budget certainty in these uncertain times.
A Health Spending Account (HSA) works like a bank account you can draw from, only it is for medical and health-related expenses not covered by the rest of your benefit plan and/or your spouse’s benefit plan. Now, Health Spending Accounts for small business are proving to be a very popular.
Most traditional plans don’t accommodate a roster of treatments such as autism, fertility, orthodontia, cosmetic procedures, or in some cases, obesity or smoking cessation. And the government gradually keeps delisting more and more services – chiropractic treatment, eye care, and physiotherapy are already restricted to some extent.
The HSA is funded by a business owner using pre-tax dollars that can be used to pay for eligible health-related expenses. Because no income tax is paid on these dollars, the purchasing power of a $600 HSA is actually $600, as opposed to $780 ($600+30% tax). See our Savings Calculator.
You don’t have to use the entire allocated amount during the year. Unused dollars are added, or rolled over to the new year’s total. However, the rollover for any one year can be rolled over only once.
HSAs have become increasingly popular over the past couple of years, and everybody wants to hear about them. Especially due to traditional insurance plans raising their premiums by 20% to 30% year after year. Although an incorporated business of any size can use HSAs, the best candidate is an incorporated business typically with one to 30 employees.
Consider the case of Barbara Johnson. Since both of her kids had autism, Barbara and her husband needed to drum up as much as $40,000 a year to cover treatment costs. And when they placed one of the kids in a special education class, those costs skyrocketed further.
Three years ago, Barbara's husband – an incorporated business owner – set up a Health Spending Account. Ever since, their treatment-related expenditure has decreased by 30%. The HSA has not only covered various aspects of their kids’ treatment, it has also allowed them to claim the full tuition amount as a medical expense.
Are you an incorporrated small business owner in Canada? Discover how the Olympia Health Spending Account can provide significant tax savings by downloading our free guide: The Beginner's Guide to Health Spending Accounts.