Let’s say that your company’s had a great year, and management is calculating bonuses (hey, with the Dow at 12,000+, you know it’s happening all over). Ever stop to think that Uncle Sam takes a pretty decent bite out of that year end treat? It’s true: a $1,000 bonus can end up netting you only $500 or $600 (or less!).
Well, first off, to pay you a $1,000, your employer has to set aside $1,100 or $1,200 (to cover payroll and other taxes). Then, the money itself is considered supplemental income, and taxed at the highest applicable rate (ouch!). Kind of takes the wind out of those sails, doesn’t it?
But a sad ending isn’t inevitable: let’s say that your employer deposits that $1,000 directly into your HSA. That simple little redirection avoids FICA and FUTA, and it’s not considered income at all; rather, it’s part of your (tax advantaged) benefits package. That means that the employer only has to budget the actual $1,000, and you get the whole kitty. Sweet.
There’s kind of a “ripple” effect at work here, as well: looking at annual bonuses as an incentive not just for productivity, but increased health awareness. That is, by encouraging employees to be more careful consumers of health care, and helping to fund that empowerment, employers and employees both win: lower health care and insurance costs, increased awareness, and “money in the bank” all help to ease the burden.
But wait, there’s more!
Since you can also elect to funnel your own funds through your HSA, you’re actually leveraging your own contributions through the process of “fungibility.” That is, your employer’s money going into the HSA is “fungible,” or “interchangeable with” your own. So if your employer is dropping an extra $K into your loss fund, it frees up dollars for other expenses you might have throughout the year, but which had been previously unfunded. This is particularly helpful for items that aren’t covered by your insurance (braces for the kids, those new bifocal contact lenses, whatever). It’s truly a win-win situation.
And you thought bonuses were sweet before?!
Henry Stern, LUTCF is an independent insurance agent in Dayton, OH. A licensed Continuing Education instructor for Ohio and Kentucky, he has well over 20 years of experience in “the biz.” He blogs every day (or so it seems) at InsureBlog.