Health Spending Account

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Health Spending Account (HSA)?

What is it?

A Health Spending Account is a uniquely designed account established exclusively for the purpose of health care spending.


What is the difference between an HWT and a PHSP?

Health and Welfare Trust (HWT)

  • Available to incorporated businesses
  • No annual maximum contributions
  • Funds roll over from year to year

Private Health Services Plan (PHSP)

  • Available to non-incorporated businesses/sole proprietors
  • Annual maximums based on family size
    $1,500 / sole proprietor
    $1,500 / dependent over 18 years old
    $ 750 / dependent under 18 years old
  • Forfeiture of remaining funds two years from date of deposit
  • Claims must be submitted within the same calendar year the service was received. eg. expenses incurred in December cannot be claimed in January. Claim must be submitted before year-end.

How does a typical Health Spending Account work?

The company makes a contribution on behalf of an employee(s) into a Health Spending Account to be used on medical expenses incurred. It is a non-taxable benefit for the employee and a 100% business deduction for the company. Contributions are determined at the start of the program for each employee enrolled. The contribution amount, once set at the start, cannot be changed within the first 12 months. Changes can only be made at the anniversary date or if a life event has occurred (A Life Event is defined as a marriage, birth or death in the family).

What are the costs associated with opening an HSA?

There is an annual account maintenance fee as well as a x% administration fee on all contributions plus applicable taxes. These fees are for administration cost to a third party administrator. the use of an arms-length third party administrator is essential to qualify for the tax treatment of the costs and benefits. 

Can we contribute different amounts for different employees?

Contribution levels can be based upon employee classes. If the employer can clearly define classes for employees, different amounts can be offered. However, if you have two employees doing the exact same job (i.e. if you have two full-time receptionists) they must be given the same amount. For a PHSP, if the the sole proprietor has a full time employee(s), they can only contribute for themselves the least amount they are giving their full-time employees.

I am an incorporated business owner and would like to have an HSA. Do I have to provide HSA’s to my full-time employees?

As long as you can prove that you are in a class of your own (i.e. executive), you do not need to offer the benefit to all employees.

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