Employer Contributions to HSAs – Tax reporting tidbits
The most common question about HSA contributions is “What should be reported in Box 12?”
The confusion stems from the label of “employer contributions.” Both the employee and employer contributions should be showing in box 12, code W. IRS Publication 969, for tax year 2008 ( page 10) indicates that contributions made by the employer via salary reduction are not included in the employee’s income. Contributions to an employee’s account by an employer using the amount of an employee’s salary reduction through a cafeteria plan are treated as employer contributions. Thus the total is displayed on the W2.
Therefore, the amount in Box 12 will include all of the employee payroll deductions and any employer money contributed. This is PRE-TAX money and gets reported on Form 8889 (required of all HSA account owners) as an EMPLOYER contribution (Line 9). Because there were no taxes deducted form this amount the employee/taxpayer cannot deduct it from gross income.
However, if the employee were to send money directly to the HSA, that amount would be reported on line 2 of Form 8889. The total of lines 2 and 9 cannot exceed the maximum annual contribution limits set by the IRS for the applicable tax year.
A friendly reminder to employees enrolled in the HSA informing them of the requirement to complete Form 8889, along with the explanation above, might reduce some of the questions directed to your HR department.
More info for the employees – Two tax forms will be sent to the employee/taxpayer, and to the IRS. The first is Form 1099-SA. This form is sent no later than January 31. Form 1099-SA tells you what distributions have been made from the health savings account during the calendar year. The amount in Box 1 of your 1099-SA will be reported on Form 8889.
The second form is Form 5498-SA. This form is sent out no later than May 15, but definitely after the tax filing deadline of April 15. Form 5498-SA cannot be sent any earlier because taxpayers have until April 15 to make contributions to the prior year’s HSA. This form included ALL contributions made between January 1 of the reportable tax year (e.g. 2008) and April 15 of the following tax year (e.g. 2009). Box 1 will be blank unless you have an MSA. Box 2 will have all the contributions to your HSA made in 2008, including any contributions made for 2007 in 2008. Do not report this on your Form 8889. Box 3 has the HSA contributions made in 2009 for 2008. Note that both boxes 2 and 3 may, or may not, match the amount reported on line 2 of Form 8889.
6 People have left comments on this post
I have a question regarding the employer contributions to an employees HSA through a Section 125. Let’s say employee X contributions $100/mo. to their HSA and the employee matches it $50/mo. The $100 employee amount goes through pre-tax, but the $50. is an employer contribution. Is the employer amount of $50/mo. supposed to reduce the employees FUTA tax, Federal/State etc?
Thank you – I’ve been wondering about the reporting aspects of our contributions and Aetna reps could not come up with the answer…you have!!! =)
The employer contribution is not counted as income. It , along with the $100 employee money, is reported in box 12, code W on the W-2. The $100 reduces the employee’s income (and subsequently the FICA, state and Federal taxes).
Has the IRS ever stated a time frame in which the employee salary deferred contributions need to be made after a pay period by the employer? For example, SIMPLE IRAs, contributions must be made within 30 days after the end of the month in which the amounts would otherwise have been payable to the employee in cash. But there does not seem to be a hard fast rule for HSAs.
I have not been able to find a definite answer to this question anywhere!
Neither can I. Generally, when the IRS is silent on a topic, we find out later that they have chosen to follow existing IRA regs, as the HSA and IRA are similar. MY suggestion would be to use the IRA guidelines as a rule.
I have not seen a definitive answer either. Our experience has been that, in the absence of specific guidance on HSAs, it is usually best to use the IRA regs as a proxy. You will notice that many of the guidelines for timing of contributions are in lock step with the IRA regs.