Below are some of the more commonly asked questions we receive from employers:
- When does the HSA have to be established?
- Does an employer have to make contributions to an employee’s HSA?
- May an employer fully fund the employee’s HSA at the beginning of the year?
- Are employer made HSA contributions deductible health care expenses?
- Can employers make pre-tax contributions to their employees’ HSAs?
- May employers make matching contributions?
- Can you coordinate an HSA with a cafeteria plan?
- Is the employer responsible for reviewing medical expenses?
- How often can an employee adjust their HSA contribution when contributing through a cafeteria plan?
When does the HSA have to be established?
The account does not ever have to be opened. Employers are under no obligation to provide HSAs to their employees. However, for employees to be able to take advantage of the ability to pay for medical expenses using pretax funds, the account must be established before the expense has been incurred.
Does an employer have to make contributions to an employee’s HSA?
No, employers are under no obligation to make any contributions to their employee’s HSAs. Many employers find that making a contribution may help improve employee acceptance of adopting an HSA plan especially if they are transitioning from a more traditional type of health coverage. If an employer elects to contribute to an HSA outside of a cafeteria plan, the contributions must be comparable. We have developed a simple worksheet that helps you evaluate comparability, click here to view our Employer Comparability Worksheet.
May an employer fully fund the employee’s HSA at the beginning of the year?
Yes. An employer may fully fund the employee’s HSA at the beginning of the year however, HSAs belong to the individual and not the employer and the employer has no further control over the accounts after they have been funded. As a result, many employers elect to fund employees HSAs periodically thoughout the year.
Are employer made HSA contributions deductible health care expenses?
The tax treatment depends on how the business is incorporated. For sole proprietors, partnerships, and S-corporations, contributions to a partner’s HSA will be treated as a distribution to the partner and included in the partner’s income and may be deductible by the partner but not by the business (see IRS Notice 2005-8 for treatment of HSA contributions in exchange for guaranteed payments of services rendered for partners and 2-percent shareholder employees of S-corporations). For larger corporations, employer contributions are treated as employer provided coverage for medical expenses under an accident or health plan.
Can employers make pre-tax contributions to their employees’ HSAs?
Yes. Employers may make pre-tax contributions to their employee’s HSAs if they have a cafeteria plan in place that provides for HSA contributions. These contributions are not subject to witholding from wages for income tax or subject to FICA, FUTA or the Railroad Retirement Act.
May employers make matching contributions?
In general, employer matching contributions would likely violate comparability testing (i.e., they must make comparable contributions for all eligible individuals with comparable coverage during the same period). However, matching contributions through a section 125 cafeteria plan are not subject to comparability testing (but section 125 nondiscrimination rules would apply).
Can you coordinate an HSA with a cafeteria plan?
Yes. Under certain limited circumstances it is possible for employees to fund an HSA in addition to a health FSA. Integration of these plans must be carefully constructed so that the benefits being reimbursed under the health FSA are limited to benefits not paid by the high deductible plan. For example, it would be possible to have an vision and dental FSA, as long as the high deductible plan does not cover vision or dental benefits.
Is the employer responsible for reviewing medical expenses?
No, the employer is not responsible for policing the employee’s HSAs. The individual account holder is responsible for determining that their account funds are being properly used and would be required to provide supporting evidence on the use of their funds if requested under IRS audit.
How often can an employee adjust their HSA contribution when contributing through a cafeteria plan?
Employees contributing to an HSA through a cafeteria plan may make adjustments to their contributions at any time, as long as the change only affects future contributions.