Author Topic: HSA, fica, and employer contributions  (Read 1967 times)

frugalnacho

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HSA, fica, and employer contributions
« on: December 19, 2018, 01:50:39 PM »
I'm trying to wrap my head around HSA and the tax implications.   I understand the tax implications if I set up my own HSA and contribute, my questions are aimed at an employer sponsored plan and the FICA taxes.  If my employer offers and HSA plan and I choose to contribute, I not only get the reduction in gross income but that contribution also avoids FICA taxes (where as my non-employee sponsored HSA does not avoid FICA taxes).  Does my employer also avoid paying FICA taxes on that contribution? 

Say I earn $1,000.  If I make no contributions I will owe 7.65% for FICA ($76.50) and my employer will have to pay an additional $76.50 on my behalf, and I will receive $923.50 of taxable income. 

If I earn $1,000 and contribute it all to my employer sponsored HSA I will owe $0 FICA and receive the full $1000 in my HSA account.  Does my employer still have to pay $76.50 in FICA taxes or not?

terran

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Re: HSA, fica, and employer contributions
« Reply #1 on: December 19, 2018, 02:14:53 PM »
No, if your HSA contribution is done in such a way that you don't pay FICA, then your employer also won't pay FICA. Or, at least, that's how it is for the paystub I have access to that has an HSA deduction that is not subject to FICA. Does it matter?

frugalnacho

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Re: HSA, fica, and employer contributions
« Reply #2 on: December 19, 2018, 02:35:37 PM »
My company offers a HDHP but no HSA.  My plan is to still use an HSA, but I'm bummed I won't be able to avoid the FICA on the $7,000 I plan to put in.  That's $535.50 extra I'll be paying in FICA. 

Seems like I could try to sell the idea to management to offer a cafeteria HSA plan because it could save them $535.50/yr in taxes just for me.  I'm sure not everyone would utilize it to full extent like me, but it still seems like it could add up to substantial savings for the employees as well as the employer to offer one and I would imagine the savings would be enough to cover the administrative costs of offering the plan.

terran

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Re: HSA, fica, and employer contributions
« Reply #3 on: December 19, 2018, 02:48:01 PM »
Good thinking. That could be a good carrot.

Need2Save

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Re: HSA, fica, and employer contributions
« Reply #4 on: December 22, 2018, 04:34:09 AM »
Keep in mind that if your company has a lot of high-earners and these high-earners are the decision makers in this case, they may not find the FICA savings that appealing because they may personally be in a situation where they only save on the Medicare portion.  In the case of most highly compensated employees, their effective FICA tax rate is 1.45% each for employer and employees, since their incomes generally exceed the ceiling for the 6.2% (each) Social Security component of the payroll tax. The ceiling, which is adjusted annually for inflation, is $132,900 in 2019 (up from $128,400 in 2018).

Also, the company would have some unfront implementation costs to establish a payroll feed from their payroll system to the HSA plan of choice and a decision of whether to pay for the monthly admin fees for each employee who opens an HSA, or have the employees pay the HSA admin fees via a monthly deduction from their HSA account.  Since some employees drain their HSA almost immediately once money is deposited, the HSA administrator often requires the employer to be on the hook for those fees in the event the employee does not pay. These are somewhat hidden from the average employee experience.

I do encourage you to bring up the topic with your HR team. The more employees express an interest, they more they will take it seriously. Perhaps they'll add it for 2020 if you keep bugging them about it.

How many people work for your company by the way?

frugalnacho

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Re: HSA, fica, and employer contributions
« Reply #5 on: December 22, 2018, 06:48:35 AM »
It's about 150 at the plant I'm at, but probably around 200-225 company wide. I'm not sure how many are on the same benefits plan as me.

I also don't believe my insurance plan is HSA compliant.  It has a high deductible, but also provides some benefits before the deductible is met (in the form of copays for office visits and Rx) so I think that disqualifies it.

Need2Save

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Re: HSA, fica, and employer contributions
« Reply #6 on: December 23, 2018, 05:25:55 AM »
Yeah, that isn't a large company thus, large health plan unless they join up with other companies for a multi-employer type plan. So I'm not surprised they aren't interested in setting up HSA admin.  However, you are right to question the copays and Rx.  It's permissable for a qualifying health plan to have a high deductible and allow some Rx to go around the deductible, but only if they are for ACA-Preventive medications that are zero co-pay anyway or for maintenance conditions like HBP or depression, etc. but generally a flat copay for office visits means it is not a qualifying CDHP/HDHP plan because that would be considered first dollar coverage.  Are you going to contribute to an HSA on your own anyway even though you don't think it's a qualifying plan?

frugalnacho

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Re: HSA, fica, and employer contributions
« Reply #7 on: December 23, 2018, 06:53:55 AM »
No.  I mean I have another 16 months to figure out if it really does qualify, at which point yes I would max my own HSA if it was, but at this point I don't think it qualifies so I won't be.

 

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