HSA contributions create a clear path to dedicated health savings for any qualified out-of-pocket medical expenses. Employer payroll deductions ensure employees are saving pre-tax dollars. These pre-tax contributions help employees reduce real cost increases to healthcare costs.
Employer contributions to an HSA, are… FREE MONEY! Tax-free money any employee can use regardless of income level or financial situation. So how do employer HSA contributions work?
Can an Employer Contribute to an Employee’s HSA?
100% Yes! In fact, anyone can contribute to an HSA. There is no limit on the number of people who can contribute to an HSA. This means more money for health savings for today or well into retirement.
Are Employer HSA Contributions Tax-Free?
Yes! They are tax-free for employees and have tax-advantages for employers, as long as they are within the yearly HSA contribution limit. Employer HSA contributions and employee contributions running through payroll on a pre-tax basis are not subject to FICA taxes (7.65%). In addition, HSA contributions are a tax-deductible expense for most employers (be sure to consult with your tax accountant).
What are Employer HSA Contribution Limits?
Yearly HSA contribution limits are not defined by the contribution party, but rather the total amount. This means employers can contribute 100% of an employee’s yearly HSA contributions ($3,500 for individuals and $7,000 for families in 2019) as long as the employee’s maximum contributions don’t exceed this yearly IRS HSA contribution limit.
Can Employees Deduct Employer HSA Contributions?
No, employees can’t deduct employer HSA contributions, because they are already pre-tax dollars. However, contributions to your HSA made by your employer (including contributions made through a cafeteria plan) may be excluded from your gross income. On top of that, if anyone OTHER THAN your Employer contributes, that 3rd party contribution would actually reduce your taxable income (vs. excluding it from your income).
These funds, like all HSA funds have triple tax advantages: tax-free contributions, tax-free growth and tax-free distributions (as long as they are used for qualified out-of-pocket medical expenses).
Employees who are lucky enough to receive employer HSA contributions are getting free money to save for health costs. This is an incredible financial cushion employers can provide employees to limit increases in health costs. Employer HSA contributions become a lifetime resources employees can use this year or in retirement, for health costs.
Disclaimer: the content presented in this article are for informational purposes only, and is not, and must not be considered tax, investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, including fund prospectuses, and consult with appropriate tax, investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.