Health Savings Accounts: Don’t Leave FICA Savings on the Table


The Federal Insurance Contributions Act, commonly referred to as FICA, is probably not a new term for most customers. At the highest level, they know it is a payroll tax applied to both employees and employers. With few exceptions, the FICA deduction comes from each employee’s paycheck, and employers share the FICA by paying a deduction equal to the amount charged to each employee.

But when it comes to understanding customers how setting up a well-structured health savings account program can save them and their employees money substantial in FICA taxes, there is sometimes a lack of knowledge, causing clients to reject the idea of ​​establishing an employer altogether. – HSA sponsored program. They just don’t see the value of the FICA savings from the HSA program.

Customers are often misinformed or unaware of the ins and outs of how FICA tax savings through an HSA program works – not to mention the many other benefits they and their employees miss out on without an FICA-sponsored HSA program. employer.

A little education goes a long way

When it comes to discussing the FICA savings of the HSA program with clients, things can quickly get confusing. It’s usually helpful to start with a little training on the FICA and HSA programs.

First, clients should understand that the current FICA tax rate for them and their employees is 7.65% each. Clients are responsible for matching the FICA tax obligations of each of their employees to their gross taxable salary. So, in essence, the total FICA tax is 15.3% for each employee/employer combination.


Now for a little training on the HSA program.

An employer-sponsored HSA program offers employers and employees a smart way to reduce their FICA tax liability and collectively save 15.3% that would otherwise be subject to FICA tax.

How? ‘Or’ What? By implementing an HSA program as part of the customer’s Section 125 Cafeteria Plan benefit package.

This is a critical point that brokers and clients need to be crystal clear about – clients can only benefit from FICA tax savings through an HSA program set up through a cafeteria plan, which offers employees a simple way to make pre-tax HSA contributions through payroll deductions.

Pretax payroll deductions reduce the amount of income that applies to FICA taxes on the employee side and, in turn, clients directly save the 7.65% on all pretax employee contributions made under their HSA program.

Use examples to help customers see savings potential

Once clients have received basic training on the FICA and HSA programs, providing concrete examples of the potential for FICA savings can often help them see the true value of setting up an HSA program.

A client of 50 employees implements an HSA program in which each employee contributes $2,000 per year to their HSA through pretax payroll deductions. With these contributions alone, the client will save $7,650 in FICA taxes per year. The FICA savings more than offset any cost of offering the HSA program. If they pay $2.50 per account per month, or $1,500 per year, they still save $6,150 per year.

When FICA savings are combined with the savings on premiums that a high-deductible health plan typically offers over traditional health plans, customers of all sizes and scopes can come out way ahead by offering an HDHP associated with an HSA program.

More Employee HSA Contributions, More FICA Savings for Clients

When it comes to maximizing clients’ FICA savings through an HSA program, the more employees contribute to their pre-tax HSA, the more the client can save. Simply put, the savings potential of the FICA client is tied to how their employees engage and use their HSA program.

Educating clients on the FICA savings of the HSA program and getting them to find value and consider creating their own HSA program is great; however, it is equally important to connect clients with the right HSA partner who can help them create the best HSA program for their business and proactively engage employees from the start to achieve maximum FICA savings.

Beyond FICA Savings

Beyond the FICA savings, with a solid understanding of how an HSA program works and the benefits to them and their employees, clients can leverage their program as a powerful recruitment and retention tool.

By offering an HDHP option with an accompanying HSA program, customers make it easy for their employees to save money on insurance premiums and taxes while better controlling their short-term health care costs. long-term.

HSAs are also one of the only tax-advantaged accounts that both reduce an employee’s overall taxable income while simultaneously providing the added financial benefit of reducing their FICA tax liability. Even pre-tax 401(k) contributions and “pre-tax” IRA contributions are still subject to FICA taxes. Helping customers understand this concept alone — so they can help their employees understand it — can lead to win-win benefits, including a happier, less financially stressed workforce.

The right HSA partner can help maximize FICA savings and more

Connecting customers to the right HSA partner is essential, as not all HSA providers are created equal.

Clients (and brokers) will benefit the most from working with a provider that specializes in HSAs and has carefully designed their experience – from program implementation and enrollment to ongoing administration, resources and tools. – to make HSAs easy for everyone while maximizing the benefits of HSAs, including FICA savings.

When customers benefit from fast integrations, administrative automations, a proactive platform that delivers proven results, resolution-focused support, and the other features the right HSA partner can provide, they save a lot of money. themselves and their employees time, money and headaches.

As HDHPs and HSAs continue to grow in popularity and use, building relationships with the best HSA vendors and creating the right customer-provider relationships will become more critical to saving customers money and maintaining them. at the forefront of benefits offers.


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