HoustonInsure
Expert
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Purchased by the employee on the individual market. Can they pay into the bank fund?
Thanks
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Can an Employer Pay into an Employee's Individual Policy HSA Fund?
- Thread starter HoustonInsure
- Start date
yes..................
Yes, but it is not tax deductible to the employee, instead it is received income tax free. Employer gets the deduction. Don't over contribute, and be sure you own the HDHP policy for at least 12 months if you plan to max out the contribution. More info on my HSA website below.
Tater is correct that anyone (including an employer) is allowed to contribute to the HSA fund.
Please consult a tax adviser about whether or not the employer's contribution would be income tax free. If it's for an owner of a Sub-S or LLC with more than 2% ownership it may be taxable. The employer should also consider non-discrimination issues. Under the "comparability rules", an employer may make contributions to an employee's HSA so long as the contributions are "comparable" to all employees who wish to participate. A Section 125 plan can avoid some of this, but you still have non-discrimination rules for the highly compensated under a Section 125. An employer who makes contributions to employees' HSAs that were not comparable, must pay an excise tax of 35% of the amount contributed. Non-discrimination rules under a Section 125 are also steep, and also the highly compensated or owner/shareholder of more than 2% of a Sub-S or LLC cannot participate. Following is a link to the Pub 969 from the IRS. Publication 969 (2011), Health Savings Accounts and Other Tax-Favored Health Plans
Sometimes it's just better to have the employer give the employee a bonus (taxable), then have the employee deduct the HSA contribution on his/her own 1040 Federal Income Tax Return.
Please consult a tax adviser about whether or not the employer's contribution would be income tax free. If it's for an owner of a Sub-S or LLC with more than 2% ownership it may be taxable. The employer should also consider non-discrimination issues. Under the "comparability rules", an employer may make contributions to an employee's HSA so long as the contributions are "comparable" to all employees who wish to participate. A Section 125 plan can avoid some of this, but you still have non-discrimination rules for the highly compensated under a Section 125. An employer who makes contributions to employees' HSAs that were not comparable, must pay an excise tax of 35% of the amount contributed. Non-discrimination rules under a Section 125 are also steep, and also the highly compensated or owner/shareholder of more than 2% of a Sub-S or LLC cannot participate. Following is a link to the Pub 969 from the IRS. Publication 969 (2011), Health Savings Accounts and Other Tax-Favored Health Plans
Sometimes it's just better to have the employer give the employee a bonus (taxable), then have the employee deduct the HSA contribution on his/her own 1040 Federal Income Tax Return.
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Employer can make a contribution to the HSA (even though I would never advise it). It is reported on the W-2 (box 12) and carried over to form 8889.
HSA contributions are not tax deductible but a deduction from gross income.
The HRA is a better choice for funding employer contributions.
YAgents is right about the bonus route costing more, but actually, it's 15.3% combined tax, at tops, and that's probably irrelevant if the insured has a salary above $110,000.
There's a temporary reduction in the FICA (social security tax), but let's ignore that for a moment. The original amount of FICA (and the amount that we will return to) is 15.3%. It is comprised of:
6.20% employer FICA Social Security amount on the first $110,000 of income
1.45% employer FICA Medicare amount
7.65% employer total
6.20% employee FICA Social Security amount (temporarily reduced to 4.20%) on the first $110,000 of income
1.45% employee FICA Medicare amount
7.65% employee total
That's 15.3% combined rate, but the FICA Social Security portion is only attributable to the first $110,000 of income. The smaller FICA Medicare portion is based on all income. There is also a small FUTA (Federal Unemployment Tax Act) tax of 0.6% of the first $7,000 of income, and many states have SUTA (state unemployment tax).
If the employee that we are discussing is the owner or top sales person for instance, they probably will hit the $110,000 of income which makes the FICA/FUTA tax nearly irrelevant anyway.
Other issues that agree with what YAgents is saying about the bonus route include Worker's Compensation premiums, 401K or Retirement plan contributions and such. The bonus route does have issues, but if the insured employee that is getting an HSA contribution from the employer is actually the owner or a highly compensated employee, most of this becomes a drop in the bucket next to the penalties for doing a direct employer contribution that may result in high penalties for discrimination or comparability rules.
