How Health Spending Accounts (HSA) Benefit You and Save You Money

Health Spending Accounts allow you to pay for legitimate medical expenses with pre-tax dollars instead of post-tax dollars. For example, if you buy corrective lens prescription eyeglasses to see better, you could pay for them with money from your pay cheque. That is after tax money, as you have already paid income taxes on part of your salary before you receive your pay cheque. Or you could pay for the eyeglasses from a Health Spending Account with dollars on which you have not paid any income tax. HSAs can benefit you and help you save money.

Health Spending Accounts Help You Save the Big Bucks on Medical Expenses

If you are in a typical Ontario tax bracket, you could be saving 20-31% on your eyeglasses by buying them using pre-tax dollars. If they are $300 eyeglasses, that’s a $60-$93 savings. If you have a family of four whom all need new eyeglasses, it can save you quite a bit.


Only “Real” Medical Expenses are Covered by HSAs

It is a “Health” spending account, so you can only pay for items and services that meet the Canada Revenue Agency criteria for medical expenses. If you can’t claim it as a medical expense on your regular income tax return, then you can’t claim it as a HSA expense either. (I’m still trying to prove that corrective vision prescriptive swim goggles should be a valid expense, by the way. If anyone has proof they are, please let me know!)

There is a list of typical medical expenses on the Canada Revenue Agency website at
http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns300-350/330/llwbl-eng.html

How Do I Get a Health Spending Account?

Many employers offer HSAs as an employee benefit. Usually, you have to deposit your own money (before you ever get paid it, and therefore before you pay tax on it) into the account. Then, when you have an expense, you file the paperwork to prove it is an acceptable medical expense. The company managing the Health Spending Account then sends you a cheque or direct deposits your refund.

Can You Have a Health Spending Account If You are Self-Employed or Work for a Small Company?

You can have an HSA if you are self employed. A one-person incorporated business can set up an HSA and the “employee” and immediate family dependents can make claims up to an annual maximum.

Sole proprietorships do not qualify for an HSA. The Canada Revenue Agency rules are very clear on this. (Yes, there are some companies taking a risk and selling HSA products to sole proprietorships, but it is against the rules and could result in penalties if and when the CRA catches on.) UPDATE: If a company is selling a HSA product to sole proprietorships and has some sort of proof that the CRA finds this is acceptable and provides that proof to me, I will be happy to rescind this comment. Apparently this is a very controversial statement. Who knew?!

The small business (and you can’t get much smaller than a one-person corporation!) then must hire a third party to administer the account.

Why Bother? Can’t You Just Use the Medical Expense Tax Credit Instead of a Health Spending Account?

The trick is that the medical expense tax credit only applies after you have spent a large amount of money. The first $2011 you spend is not eligible for any credit, unless your net income was less than $67,000. The Health Spending Account is used to get a tax break on even the first $10 you spend on medical expenses.

Is a Health Spending Account (HSA) the Same as a Health Care Spending Account (HCSA)?

Yes. A Health Spending Account (HSA) and a Health Care Spending Account (HCSA) are both just different names for the same thing. The primary difference is that spell check will not keep switching the letters HCSA into HAS like it does with HSA!


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Do you participate in an HSA? Have you saved much money? Have you had to change your spell checking program to stop automatically converting the phrase HSA into HAS? Please share your experiences with a comment.

2 thoughts on “How Health Spending Accounts (HSA) Benefit You and Save You Money

  1. Excellent article. Small business owners and their employees need to have HSAs on their list of taking advantage of widget amid tax breaks. Tax assisted HSAs are in my opinion, a much better option then traditional insured health benefits which offer only partial tax-free benefits and demand co-pays and deductibles and excluded many items that should be tax-free. Your article on “HSA cons” needs to be corrected in part.

    • Since cons are an opinion which won’t be shared by everyone, I’m not sure that it does need to be corrected. Can you tell me what part of that article bothers you?

      (I had to remove the link to your website because it wasn’t working when I checked and I don’t like to include broken links on my site.)

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