EMPLOYER PARTICIPATION IN HSAs
Synopsis by Dave Ballard Insurance
As an employer, do I own my employees’ HSAs? Can
I control how they spend the money in
them?
No, you do not own your employees’ HSAs. The employee fully
owns the contributions to the account as soon as they are deposited,
just as with a personal checking or savings account to which you
would deposit their compensation.
My employees want to contribute to their HSAs but want
to make sure they get a tax benefit out of doing so. How does
that work?
Employee contributions can be made to
HSAs on either after-tax or pre-tax basis. If made on an after-tax
basis they should be counted as an above-the-line deduction on their
tax return, effectively making their contributions tax-free. If
they want to make the contribution pre-tax it can be done through
a Section 125 (also called a “salary reduction” or “cafeteria
plan”).
How much do I have to contribute to my employees’ HSA,
as an employer?
As much or as little as you want (while
staying below the legal limit on the account of $2,850 for employees
with self-only coverage or $5,650 for employees with family coverage
in 2007).
Do HSA contributions have to be made in equal amounts each
month?
No, you can contribute in a lump sum
or in any amounts or frequency you wish. However, keep in
mind that the funds belong to the employee after they are deposited.
As an employer, do I have to contribute the same amount
to every employee’s HSA? Employer contributions
must be “comparable”, that is they must be in the
same dollar amount or same percentage of the employee’s
deductible for all employees with the same category of coverage
-- for this purpose, generally categories of coverage are
either “self-only” or “family”,
although consult the comparability regulations regarding the ability
to subdivide the family category. You can also vary the
level of contributions for “full-time” vs. “part-time” employees,
and employees covered by a collective bargaining agreement are
not covered by the comparability rules if health benefits were
part of the agreement. You do not need to consider employees
who do not have HDHP coverage as they are not eligible for HSA
contributions.
Our company offers benefits through a Section 125 plan,
do contributions have to be comparable under these plans as well?
Section 125 plans (also known as “salary reduction” or “cafeteria” plans)
must meet a different set of rules. Under these plans, contributions
(both from employer and/or employee) must meet “non-discrimination” rules. These
rules require the employer to ensure that contributions do not favor
higher compensated employees.
Our company wants to offer “matching” contributions,
can we do that?
Yes, but your company can only offer “matching” contributions
through a Section 125 plan. Remember that the non-discrimination
rules still apply.
I don’t offer health insurance, but some of my employees
have opened HSAs and I’d like to help them out, what can
I do?
Your company can make pre-tax contributions
to your employees’ HSAs as long as you do so for all eligible
employees. However, the comparability rules apply. If
you have a Section 125 plan, then the non-discrimination rules apply.
How are contributions treated for owners and shareholders
of S corps?
Owners and officers with greater than
2% share of a Subchapter S corporation cannot make pre-tax contributions
to their HSAs through the company by salary reduction. In
addition, any contributions made to their HSAs by the corporation
are taxable as income. However, they can make their own personal
contributions to their HSAs and take the "above-the-line" deduction
on their personal income taxes.
How are contributions treated for partners in a partnership
or limited liability company (LLC)?
Partners in a partnership or LLC cannot
make pre-tax contributions to their HSAs through the partnership
by salary reduction. However, they can make their own personal
contributions to their HSAs and take the "above-the-line" deduction
on their personal income taxes.
May a self-employed person contribute to an HSA on a pre-tax
basis?
No. Self-employed persons may not contribute to an HSA on
a pre-tax basis and may not take the
amount of their HSA contribution as a deduction for SECA purposes. However,
they may contribute to an HSA with after-tax dollars and take the
above-the-line deduction.
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