Discover the substantial cost savings offered by health spending accounts (HSA) compared to personally paying for medical expenses as a single-person corporation. This informative post showcases the potential savings and highlights why obtaining a health spending account is a worthwhile investment for covering your healthcare expenses, as opposed to relying solely on personal income. Health spending accounts are 100% tax-deductible for your business and can be utilized for all healthcare expenses, including those of your dependents.
If you choose to pay for healthcare expenses with personal income, you’ll be using your net income after tax deductions. However, by opting for a health spending account, you can pay for the same expenses using your business income, with the amount paid becoming a tax deduction for your business and tax-free for you as an individual.
Let’s explore different scenarios to illustrate the cost savings potential of a Health Spending Account (HSA) based on various income levels. For the purpose of this example, we will assume a business in Ontario, utilizing Ontario tax rates for calculations. Additionally, we will consider a $10,000 health spending account and assume a 10% administration fee. Please note that these figures are based on 2021 tax rates.
| Income | HSA Admin Fee +Taxes | Average Tax Rate | Savings |
| $50,000 | 21.50% | 15.31% | -6.19% |
| $100,000 | 21.50% | 23.45% | 1.95% |
| $150,000 | 21.50% | 30.11% | 8.61% |
If your business generates minimal revenue, there may not be a significant tax advantage to having a health spending account. However, once your business exceeds $86,375 in revenue, based on the aforementioned figures, having a health spending account becomes a beneficial choice. In other provinces, the revenue threshold for advantageous HSAs may be lower, as Ontario imposes higher taxes on health spending accounts compared to other provinces.
Health spending accounts do have taxes applied based on the claim amount, your province of residence, and the administration fee charged. However, as demonstrated in the table above, if your business generates revenue exceeding $100,000, a health spending account emerges as the ideal choice.
