Note: I am having major issues with quote tags that I want to link to source sites, so I apologize in advance if anything breaks. Mods with who can fix anything, feel free! Thank you!We are having Bank X present this information, but you can set up your HSA anywhere you choose.
So when you do your taxes, you'll check a box that says you contributed to an hsa, but that it wasn't through payroll, so you can get your taxes back?
I'm trying to figure this one out too. My last company switched from Benefit Wallet to HealthEquity mid year. It took me six months to find the right forms to close the BW account. I just started at a new company, and their HSA is BW. Argh!
First, taking back taxes:
No, this needs to go through payroll, not direct contributions. You can only get the income taxes back on your return, not the FICA taxes.
Employment taxes. Amounts you contribute to your employees' HSAs are generally not subject to employment taxes. You must report the contributions in box 12 of the Form W-2 you file for each employee. This includes the amounts the employee elected to contribute through a cafeteria plan. Enter code “W” in box 12.
And, not authoritative, but matches up with my general knowledge:
Unfortunately, the IRS will not refund Social Security and Medicare taxes paid on income that is used to make after-tax contributions to a Health Saving Account. The law creating Health Savings Accounts only allows that qualified after-tax contributions can be exempt from income taxes. {With This Herring - So, any direct contributions you make that don't go through payroll only save you income tax. They don't save you FICA.}
Pre-tax contributions made through your employer are part of your employer’s cafeteria plan (also known as Section 125 plan). These employee benefit plans are governed under Section 125 of the Internal Revenue Code and allow employees to pay for a number of benefits with income that is exempt from federal and state income taxes, Social Security taxes, and Medicare taxes. Among the benefits that can be included are health insurance, child care expenses, and contributions to Flexible Spending Accounts and Health Savings Accounts.
Ask your HR company to consider paying the monthly fee or changing HSA administrators. The current setup is a disincentive for employees to manage and improve their health. They need to hear it.
You are not forced to use the HSA offered through your employer. You can instead contribute to an HSA on your own. One downside is that you will lose the fica tax savings when doing this method but compare it to the fees of your current option.
No, you don't lose the FICA tax savings as long as you make those contributions through payroll, your employer knows that those contributions direct deposited to bank X are for your HSA, and your employer categorizes them correctly in payroll.
This is great if your HR or payroll will do this. It's it optional or something that you can quasi force them to do?
Second, choosing an HSA provider and can employers be forced to correctly code contributions to non-preferred/er-recommended providers:
I don't think the IRS even considers that an employer might refuse if you set up your HSA through a provider that the employer didn't suggest. It is in the Company's interest to process these contributions and code them correctly, as the savings on FICA are for both you AND YOUR EMPLOYER. It looks like your employer must, but I'm only a CPA, not a lawyer.
This refers to employ
er contributions to HSAs:
Comparable contributions. If you decide to make contributions, you must make comparable contributions to all comparable participating employees' HSAs.
This, again, shows how employ
ers have no control over account:
Q-25. If an employer contributes to the HSA of an employee who ceases to be an eligible individual during a year, can the employer recoup amounts that the employer contributed after the employee ceased to be an eligible individual?
A-25. No. Employers generally cannot recoup amounts from an HSA other than as discussed above in Q&A-23 and Q&A-24. See Notice 2004-50, Q&A-82.
Example. Employee N was an eligible individual on January 1, 2008. On April 1, 2008, Employee N is no longer an eligible individual because Employee N’s spouse enrolled in a general purpose health FSA that covers all family members. Employee N first realizes that he is no longer eligible on July 17, 2008, at which time Employee N informs Employer O to cease HSA contributions.
Employer O’s contributions into Employee N’s HSA between April 1, 2008 and July 17, 2008 cannot be recouped by Employer O because Employee N has a nonforfeitable interest in his HSA. Employee N is responsible for determining if the contributions exceed the maximum annual contribution limit in § 223(b), and for withdrawing the excess contribution and the income attributable to the excess contribution and including both in gross income.
Here's how the HSA discussion should go:
Step 1 - Company says "Good news! HD health plans for everyone instead of the gold plans we had! Here's an HSA provider we recommend/who agreed to come do a presentation!" (Optional - Employer says "To make this increased deductible less painful, we are going to put an additional $XX into each of your HSA accounts per pay period. This money won't count as part of your wages and will not be subject to any tax you must pay, but it will count toward your max HSA contribution for the year.")
Step 2 - Each employee sets up his/her OWN HSA account with that provider or with one of their choice. THE COMPANY CAN'T SET THESE UP, AND THE COMPANY CAN'T SEE THE DETAILS OF WHAT IS IN THE ACCOUNT. IT IS YOURS, THE WAY A CHECKING ACCOUNT IS YOURS.
Step 3 - Each employee tells Company how much to contribute per paycheck, what the account routing info is for direct deposit, and tells company it is a legit HSA account. HSA bank may need to write a letter to Company saying "This is a legit HSA account" (I think I might have had mine do this, but I'm not sure).
Step 4 - Company pays next payroll. Company uses special payroll codes to say "This is an employee HSA contribution."
Instead of 100% of salary (less taxes) going to Employee A's checking account, now 2% of salary goes to account that Employee A set up that is an HSA account (And, as optional in step 1, $XX from Company). When processing payroll, Company codes all employee contributions to HSAs the same way. It should make no difference to Company whether you use the suggested bank or not, just as Company doesn't care which bank has your checking account.
Here is how your W-2 will come out (assuming $3K HSA contribution, $18K 401k contribution:
Gross wages (will show on final paystub for year, but NOWHERE on W-2) | $50,000 |
EE HSA contributions | -$3,000 |
| _______ |
SS/Medi wages on W-2 (boxes 3 and 5, up to limit) | $47,000 |
401(k) EE | -$18,000 |
| _______ |
Fed/state wages for income tax purposes | $29,000 |
Your employee HSA contributions, plus any additional contributions the employer may have given, will all appear under code W on your W-2.