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What Type of Employee can get a Pre-Tax HSA Contribution?

3 min read

30 sec brief

Helping employees contribute pre-tax dollars to their HSA means you are creating an automated way for employees to save for health costs. It just might be the easiest and most cost-effective health benefit you can offer. Understanding how your corporate structure and employee category type will affect these contributions will get you prepared to add an…

Helping employees contribute pre-tax dollars to their HSA means you are creating an automated way for employees to save for health costs. It just might be the easiest and most cost-effective health benefit you can offer. Understanding how your corporate structure and employee category type will affect these contributions will get you prepared to add an HSA to your benefits offering. You don’t need to wait til next open enrollment to add an HSA, they are one of the few benefits changes you can make any time.

 Employer Pre-Tax HSA Contribution Requirements

  • Eligible Corporate Structures
    • C-Corp
    • LLC / LLP – these corporation types must be taxed as a corporation to allow for pre-tax HSA contributions.
    • S-Corp – any person who owns more than 2% of the company is ineligible to receive pre-tax contributions because they are considered an owner by the IRS.
    • Sole Proprietorship – owners cannot receive pre-tax contributions, but the sole prop’s non-familial employees can if set-up correctly.
  • Section 125 Cafeteria Plan

What is a Section 125 Cafeteria Plan?

A Section 125 Cafeteria Plan is a written plan maintained by an employer where the participants of the plan can receive benefits on a pre-tax basis via salary reduction. Employers can still offer an HSA without a Section 125 Cafeteria Plan. They just can’t make or offer pre-tax HSA contributions for employees.

Employee Requirements

First and foremost, employees must have an HSA-Eligible Healthcare Plan to contribute to an HSA.

Contribution eligibility is defined on a month by month basis (defined by tax year, not health plan calendar). On top of that, employers need to make sure plan year HSA contributions (over two plan years) are in compliance with the calendar year contribution limits.

Employment Type

  • Full-time Employees
  • Part-time Employees / Contractor
  • Collectively Bargained Employees

The good news is that all employee types can make or receive pre-tax HSA contributions, as long as they are eligible. It is rare that part-time employees will receive medical benefits as part of their employment, but if they do (and their plan is HSA-eligible), they can make or receive pre-tax HSA contributions.

In fact, employers can still contribute to their former employees’ HSA, as long as they still have a qualified HSA-eligible health plan.

Helping employees save pre-tax dollars for their HSA limits the real dollar cost of healthcare. No matter the corporate structure or employment type, it all starts with an HSA-eligible health plan. Make sure that is part of your benefits offering.

If you need more help with health account decisions, check out our blog. We will make you a healthcare benefits expert in no time, without any extra work or effort on your end.

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.

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Lively

We are HSA Experts! Lively is a Health Savings Account (HSA) platform for employers and individuals. A 401(k) for healthcare.

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