The health care system in Canada is very different from the US. You may have heard of Health Savings Account (HSA) accounts, but did you know that they’re a little different in Canada? Here are the 5 main differences between HSA accounts in Canada and the US, and what you need to know about them.
1. All employees are eligible for HSA in Canada:
HSA in Canada is a tax-effective employee account. It is sponsored by the employer to reimburse health care and dental expenses. The employer deposits a predetermined amount in the health savings account and all employees can benefit from it. Here is a detailed guide on how HSA works in Canada.
Only individuals covered under high deductible health plans can create a health savings account in the US. A person with an existing health plan or Medicare is not eligible for HSA in America.
2. HSA in Canada is primarily sponsored by employers:
A health savings account is set up to provide benefits to the employees that are not covered by the existing health care plan. In Canada, HSA is a benefit to the employees to reimburse their medical expenses.
HSA in the US can be funded by both the employer and the employee. The amount of contribution is at their discretion.
3. No limits on annual contribution:
There is no upper limit on the amount of contribution to the HSA account. The employer can make a budgeted contribution or reimburse as the claims occur. The contract between the employer and the employee is the only governing factor of the amount credited to the account.
The HSAs in the US have a limit on the annual contribution amount. The maximum deposit in the HSA is $3600 for individuals and $7200 for families. People above the age of 55 can make an additional contribution of $1000 to their health savings account. The upper limit applies to the total contribution by the employer and employee.
4. Withdrawals are allowed only for permissible medical expenses:
HSA in Canada reimburse the following expenses
- Medical and dental expenses exceeding the health plan coverage.
- Expenses not covered by traditional health care.
These reimbursed expenses are non-taxable for the employees.
HSAs in the US allow withdrawal from the account for IRS-approved medical expenses. However, there is a provision to withdraw funds for non-medical expenses. In such cases, the amount withdrawn is taxed as the individual’s income and also attracts an additional 20% penalty.
5. HSA in Canada serve as an alternative to traditional insurance plans:
HSA presents as an alternative to small-scale employers to provide health benefits to employees and write them off as business expenses. It gives employers a chance to develop a flexible health plan while saving tax.
HSAs in the US are perceived as an add-on to existing insurance and an investment avenue. The funds in the HSA account can be invested and grown tax-free. The fund does not terminate and can be carried forward by the employee even after moving to another job.
HSAs are a good resource to have. Hopefully, this article has helped you to understand them a bit better and outlined 5 Important Things to Know About HSA Accounts in Canada.
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