The triple tax savings advantage of an HSA are:
- Money contributed to an HSA goes in tax free.
- Money in an HSA grows tax free.
- Money taken out of an HSA for qualified medical expenses comes out tax free.
Can employees make pretax HSA contributions?
For an employee to be able to make pretax HSA contributions through payroll deduction the IRS requires that the employer has a cafeteria plan in place and that they add HSA contributions to that Plan document.
What is the tax treatment of employer contributions to an employee’s HSA?
In the case of an employee who is an eligible individual, employer contributions (provided they are within the HSA contribution limits) to the employee’s HSA are treated as employer-provided coverage for medical expenses under an accident or health plan and are excludable from the employee’s gross income. The employer contributions are not subject to withholding from wages for income tax or subject to the Federal Insurance Contributions Act (FICA), the Federal Unemployment Tax Act (FUTA), or the Railroad Retirement Tax Act. Contributions to an employee’s HSA through a cafeteria plan are treated as employer contributions. The employee cannot deduct employer contributions on his or her federal income tax return as HSA contributions or as medical expense deductions under section 213.