09/05/2017

Employer Contributions to a Health Savings Account – What You Need to Know

As the employee benefit landscape continues to change, employers are constantly looking for ways to offer a comprehensive, cost-effective benefit package to their employees. One option many employers use is making contributions to spending accounts.

If an employer offers a qualifying high deductible health plan (HDHP) and a health savings account (HSA), they may decide to make a contribution to the account for employees who open an HSA. If an employer decides to do this,  there are a few important things to consider.

1. Will the contribution be made pre-tax or post-tax?

This is an important decision an employer must make when choosing  to contribute to employees’ HSAs.  Contributions made pre-tax through a cafeteria plan are not subject to payroll taxes for both the employee and the employer.  The amounts contributed must meet the nondiscrimination requirements for IRS Code Section 125 plans.

An employer who chooses to make a contribution to employees’ HSAs post-tax, outside a cafeteria plan, has additional requirements they must meet.  The employer contributions are subject to Comparability Requirements.  Essentially, the same amount must be contributed to similarly situated employees.  An employer must also conduct testing to ensure the contributions meet the requirements.

2. When will the funds be contributed?

An employer can choose to make their contribution to the HSA at anytime during the year.  Common funding timelines are annually, monthly, and per pay.

3. What amount will the employer contribute?

Will the employer contribute the full amount to employees’ HSAs?  Will the amount be a matching or a seed contribution?  There are many options available but the amount an employer contributes cannot exceed the IRS contribution limit for that year.  For example, an employer considering making contributions to HSAs in 2018 can contribute up to $3,450 for employees with single coverage and up to $6,850 for employees with family coverage.  Employees who also want to contribute to the HSA can only contribute the difference between the annual limit and the employer contribution.

Offering an employer contribution to employees who enroll in an HSA is a great way to increase awareness and encourage employees to participate in the benefit.

BusinessPlans, Inc. – myCafeteriaPlan does not intend to provide legal or tax advice and information contained in this article should not be interpreted as such. Regulations governing pretax plans are often open to interpretation and should be reviewed with your legal or tax advisor before making any decisions regarding your plan.