Tax Tip Thursday

Health Spending Account

Today, we are going to talk about medical expenses and what’s called a health spending account (HSA). Health spending accounts are most beneficial for owner-run business, but do provide opportunities to offer some benefits to your employees as well.

Why an HSA?

An HSA is a tax-efficient way to pay for health and dental expenses. health and dental benefits offered through an HSA are fully tax-deductible to the business and are received 100% tax free by the employees!

It can be a standalone solution by providing you and your employees a reimbursement plan for most health and dental expenses. You are suitable for an HSA if you:

  • Own a business,
  • Pay medical bills, and
  • Pay income tax/receive T4 income.

How Does an HSA Work?

Using an HSA begins when the employee makes a purchase or has a partially-paid expense by another insurance plan. The HSA provider then coordinates the process from receipt of the employee’s claim to funding the reimbursement (up to the appropriate limit as set by your business). Once the claim has been processed, your company receives an invoice for the service (submitted expense plus 10%) as a business expense and the employee receives the reimbursement tax free.

All people using an HSA must receive a T4 income to comply with the CRA.

Benefits of Using an HSA

You are using pre-tax dollars to pay for healthcare!

The Canadian Government considers healthcare expenses to be tax-free if managed within an HSA, so having one creates an environment for companies to pay for healthcare expenses directly using pre-tax dollars.

If you compare the difference between your company adding money to T4 income for healthcare expenses (and paying tax on that income) versus your business paying directly for healthcare expenses with pre-tax dollars, the savings are significant.

With most HSAs you have two funding options:

  1. Pay-as-you-go funding where notifications are sent by email to the company administrator whenever an employee claim is submitted. The company then provides funding (cheque or online bill payment) to cover the claim plus an administration fee. If there are no claims submitted, there is no funding needed.
  2. Pre-Funding, where a block of money (can be any amount) is submitted by cheque or online bill payment to create a funding pool that is automatically drawn against for each approved claim.

Additionally, HSAs allow for online claim filing and offer a large range of allowable expenses, including:

  • Dental (basic & major),
  • Orthodontics,
  • Prescription medication,
  • Paramedical services,
  • Vision care,
  • Physiotherapy, and
  • Chiropractors

How We Help

We can help you get an HSA set up the right way for YOUR business today! Show your employees that you care about them and their wellbeing while also saving yourself a dime! An HSA is a fantastic investment in your business.

Book a FREE consultation now to get started!

Disclaimer:

This article provides information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. It does not provide legal or tax advice nor can it or should it be relied upon. All tax situations are specific to each individual. If you have specific tax questions you should book an appointment for a 1 on 1 consultation.