HSA for Small Business Owners: Qualifications
Small businesses in BC fall into two categories: incorporated or sole-proprietor
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For incorporated business owners, both the employer and employee can take part in the plan. Businesses with as a few as one employee can be eligible.
This means a business with only the owner can be eligible. The only requirements are that the owner must be considered an employee earning a bona fide salary and the business must be earning active business income.
As for unincorporated business, usually sole proprietors, HSA are only eligible when they have at least one arm's-length employee. Sole-proprietors with no arm’s-length employee cannot use a HSA and must buy an insured plan through an insurance company.
Some HSA administrators do not allow unincorporated businesses due to the CRA challenges of their tax-act qualifications in the past. The risk is to be acknowledged by business owners if they wish to pursue further,
HSA for Small Business Owners: Tax Benefits
Business owners can save up to 50% in health expenses depending on their income bracket. A HSA allows business owners to deduct health expenses directly from the business bypassing income tax.
Here is a sample case study:
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Line Items | No Planning | HSA Planning |
|---|---|---|
Net Income | $100,000 | $100,000 |
Tax Bracket | 38% | 38% |
Medical Expense | $5,000 | $5,000 |
Processing Fee | - | 10% |
GST | - | 5% |
Corporate Cost | $8,064.52 | $5,525.00 |
Corporate Saving | -$2,538.52 | $2,538.52 |
Tax Paid | $3,064.52 | $ - |
With an annual income of $100,000 and an annual medical expense of $5,000, the business owner can save $2,528.52 or 32% in cost every year for each employee.
HSA for Small Business Owners: Coverage
HSA offers a wide range of eligible medical expenses. Common ones include dental, vision, drugs, licensed practitioners and even existing health benefit insurance premiums. This means if an employee or spouse already has an existing group benefits plan, the employee can use the HSA to cover the premium.
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To see a summarized list of coverage, visit the Coverage page
Additionally, HSA can be used to top up existing plans. HSA can cover the individual portion of an existing traditional group benefits plan
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Sign Up Now For a Free HSA
Here at Canadian HSA, we're focused helping small business owners like yourself find tax efficient plans and coverage. Contact us today for any questions or if you'd like to sign up for a free health spending account.