- Posted by Chris Elvidge
- On September 18, 2017
As High Deductible Health plans paired with Health Savings Plans (HSA) surge in popularity with employees due the pre-tax savings ability, control, flexibility and rollover capability, so does the need for employers to understand their responsibilities on behalf of the employees in managing this product. As enrollment continues to grow, make sure you (as an employer) are taking all the steps to provide employees necessary to make it a smooth and ‘compliant’ transition.
If you offer pretax employer contributions, then be aware of the following:
Maintain Section 125 plan for payroll deferral
If you allow pretax payroll deferral, then you must adopt and maintain a Section 125 plan that provides for HSA deferrals. This includes collecting employee deferral elections, sending the deferred amount directly to the HSA custodian, and accounting for the money for tax-reporting purposes.
Make comparable contributions
If you are making a pretax ‘employer’ contribution (non-payroll deferral) it must be done on a comparable basis.
Business owner rules
Business owners generally are not treated as employees and employers need to review HSA contributions for business owners for proper tax reporting.
You need to properly complete employees’ W-2 forms and its own tax-filing regarding HSAs (HSA employer contributions are generally deductible as a benefit under IRC Section 106).
HSA eligibility and contribution limits
You need to work with employees to determine eligibility for an HSA and the employee’s HSA contribution limit. Although it is legally the employee’s responsibility to determine his or her eligibility and contribution limit, a mistake in these areas generally comes back to you as the employer to correct (by employee). Mistakes are best avoided by upfront communication. Also, you do have some responsibility (as employer) not to exceed the known federal limits. You may not know if a particular employee is ineligible for an HSA due to other health coverage, but an employer is expected to know the current HSA limits for the year and not exceed those limits.
There are various detailed rules that fall within the responsibility of the employer that are too numerous to list but include items such as:
(1) holding employer contributions for an employee that fails to open an HSA
(2) not being able to “recoup” money mistakenly made to an employee’s HSA
(3) actually making employer HSA contributions into employees HSAs on a timely basis