3 tips to help employees reduce taxes with an HSA

Tax season is in full swing, and your employees are looking for ways to reduce their tax liability or maximize their refund. Yet, while most people are familiar with tax-saving tactics like claiming charitable donations, mortgage interest, and childcare expenses, your employees may be missing a simple way to save an estimated 30% (depending on their tax bracket), by using a health savings account (HSA) to pay for common, everyday health needs. 

If your company offers a qualifying high-deductible plan and an HSA, take time to educate employees about how this tax-advantaged account allows them to set aside pre-tax dollars to pay for eligible health-related expenses, to fund and reimburse themselves for past eligible expenses, or to save for future healthcare needs. As tax time approaches, here are three ways employees can use their HSA to reduce their tax liability and support their health. 

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1. Reimburse themselves for 2023 healthcare expenses
Your employees may not realize they can still fund their 2023 HSA and reimburse themselves for eligible healthcare expenses from 2023, thereby reducing their tax liability and putting extra money in their pockets. (Note: Contributions cannot exceed the 2023 contribution limit.) There are thousands of products and services eligible for HSA spending, from doctor visits and eye exams to over-the-counter medications, sunscreen, menstrual care products, baby health products, high-tech health devices, and more. By one estimate, the average household spends $1,600 on products that could be purchased with tax-free HSA funds. Encourage employees to review receipts for all healthcare expenses — including over-the-counter supplies, and direct them to a comprehensive HSA eligibility list to ensure they reimburse themselves only for eligible items. 

2. Make a last-minute contribution until April 15 (or their tax filing deadline)
Employees who did not fund their HSA or did not fully fund the account in 2023 can still make a contribution up until their tax filing deadline. HSA contributions are an easy way for employees to reduce their taxable income. For individuals who were enrolled in an HSA last year, the contribution limit was $3,850, while the family HSA contribution limit was $7,750. Employers over 55 can contribute an additional $1,000 for 2023. This is called a catch-up contribution. 

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3. Track receipts to make their spend/save strategy easier: Saving receipts for healthcare expenses is a must-do for all HSA users, whether they are a saver or a spender. Employees can choose to fund their account and use their HSA to pay for expenses throughout the year; fund the account as needed for expenses to realize the tax savings; or let their balance grow and reimburse themselves for expenses down the road. Regardless of their HSA user style, when employees track expenses by tax year, it becomes easier to retroactively submit expenses later and realize savings. HR teams can direct employees to an online HSA Expense Dashboard where they can upload receipts and track online purchases each year. 

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Nobody wants to pay more than their fair share of taxes, yet many people miss easy opportunities to reduce their tax bill because they don't understand these HSA tax hacks. Be a hero for your employees this tax season and help them understand and maximize their HSA while reducing their tax liability or increasing their refund.