Last month, the IRS issued new guidance for the creation and administration of a health savings account plan (HSA) for employees. A HSA is very similar to a medical flexible spending account or FSA, which often supplements an employer’s group health plan, but there are significant differences. In particular, the new guidance makes it clear that any individual or custodian can establish a HSA and although permitted, an individual’s employer need not be involved in its creation.
Similar to a FSA, a HSA can be established and funded by an employer. Contributions to a HSA are not included in an employee’s gross income for federal income tax purposes and are not subject to FICA withholding requirements. Also, a HSA operates very similar to a FSA, to which an individual can also make tax-deductible cash contributions that can then be used to reimburse the individual for qualifying medical expenses. Distributions from a HSA are not included in the beneficiary’s gross income. Distributions
