(Q) As an employer, do I own my employees’ HSAs? Can I control how they spend the money in them? Top
(A) 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.
(Q) 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? Top
(A) 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. If they want to make the contribution pre-tax it can be done through a Section 125 via payroll deduction (also called a “salary reduction” or “cafeteria plan”).
(Q) How much do I have to contribute to my employees’ HSA, as an employer? Top
(A) As much or as little as you want (while staying below the legal limit as set by the IRS). Click here to view the current IRS Indexed Amounts
(Q) Do HSA contributions have to be made in equal amounts each month? Top
(A) 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.
(Q) As an employer, do I have to contribute the same amount to every employee’s HSA? Top
(A) Employer contributions outside of a Section 125 plan must be “comparable”, that is they must be in the same dollar amount or same percentage of the employee’s deductible for all employees in the same “class”. You can vary the level of contributions for “full-time” vs. “part-time” employees, and employees with “self-only” coverage vs. “family coverage”. You do not need to consider employees who do not have HDHP coverage as they are not eligible for HSA contributions. Click here to view the IRS Regulations on Comparability
(Q) Our company offers benefits through a Section 125 plan. Do contributions have to be comparable under these plans as well? Top
(A) 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.
(Q) Our company wants to offer “matching” contributions. Can we do that? Top
(A) Yes, but your company can only offer “matching” contributions through a Section 125 plan. Remember that the non-discrimination rules still apply.
(Q) 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? Top
(A) Your company can make tax free contributions to your employees’ HSAs as long as you do so for all eligible employees. If you do not have a Section 125 plan, the comparability rules apply. If you have a Section 125 plan, then the non-discrimination rules apply.
(Q) How are contributions treated for owners and shareholders of S corps? Top
(A) More than 2% owners 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.
Rules of attribution apply to more than 2% owners of an S corporation, therefore the more than 2% owner’s spouse, parents, children and grandchildren may not contribute to an HSA on a pre-tax basis. However, they may contribute on a post-tax basis and deduct the contribution at the end of the year on their personal tax return.
(Q) How are contributions treated for partners in a partnership or limited liability company (LLC)? Top
(A) 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.
(Q) May a self-employed person contribute to an HSA on a pre-tax basis? Top
(A) No. Self-employed persons may not contribute to an HSA on a pre-tax basis. However, they may contribute to an HSA with after-tax dollars and take the “above-the-line” deduction.