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Some more help on finding the right HSA for you in my series on items you should look for when choosing an HSA provider…
PHSPs With No Limits
If you are a sole-proprietor, you can open a Private Health Services Plan through most third-party administrators and insurers to finance your healthcare costs as well as insurance premiums. Most sole-proprietors are individuals (i.e. tradespeople, lawyers, hairstylists, etc..) while some are employee groups (i.e. smaller retailers, professional firms, etc..) One problem that is causing grief is the growing number of HSA Providers offering PHSPs to sole-proprietors and NOT following the rules in terms of contribution limits.
If you are a sole-proprietor (unincorporated), you may qualify for a PHSP up to an annual maximum depending on the structure of your family ($1,500 / sole proprietor, $1,500 / dependent over 18 years old, $ 750 / dependent under 18 years old). Some HSA providers have ignored this rule, clearly defined in IT-339R2 (Meaning of Private Health Services Plan). This can be a problem for small business owners with a PHSP. One, you may be placing more claims through an administrator than you are allowed to claim on your return, costing you more money in administration fees to the HSA provider. Secondly, your deduction may be offside if you are offering a PHSP to your employees as an unincorporated entity. So, what should you do?
First, look at your existing deposit schedule versus claims and compare this amount to the logical maximum you would be entitled to with a PHSP. If you are above the maximum, you should speak with your HSA Provider regarding options for reducing the amount. If you have employees, it is important to note that their funds should be residing in a Health and Welfare Trust and not a PHSP. Secondly, you should remember that as owner – you may only deduct your PHSP contribution or the amount of the smallest contribution made to an employee, whatever is lower. Many HSA Providers forget this and the last thing you want is an auditor pointing this policy out to you.
In summary, PHSPs are great as long as you follow the rules. When choosing an HSA Provider, be sure to ask them about their policy on PHSP maximums and over-funding. If you have a group, ask them how they structure their plans to accomodate multi-employee HWT requirements. If they are confused by your questions….buyer beware!!
