Contributions to HSAs
Who may contribute to an HSA?
Contributions to HSAs can be made by an eligible individual, the individual's employer, the individual's family members, and any other person. Contributions made by the individual are deductible from the individual's adjusted gross income. Contributions made by the individual's employer are excluded from the individual's income and are not taxable to the individual. Contributions from all sources are aggregated for purposes of applying the maximum annual contribution limit described below.
How do you make contributions to an HSA?
Contributions to an HSA must be made in cash or its equivalent. As custodian of your HSA, Sterling HSA will accept contributions by check or via the Automated Clearing House (ACH) Network. Sterling HSA will also accept rollovers or transfers of assets from a medical savings account ("MSA"), as permitted by the Internal Revenue Code.
How much can you contribute to an HSA?
The maximum contribution for 2014 is $3,300 for an individual or $6,550 for a family. (These dollar limits may be adjusted for inflation each year.) These annual contribution limits apply regardless of whether the contributions are made by an individual, the individual's employer, the individual's family members, or any other person. The maximum contribution limits apply regardless of the deductible amount you purchased or when you opened the HSA qualified insurance plan.
Do special rules apply to contributions by spouses?
HSA contributions by spouses are divided equally between them unless they have agreed to a different division.
What is the tax treatment of an eligible individuals' HSA contributions?
Contributions to your HSA, up to the applicable maximum contribution, are deductible from your adjusted federal gross income, whether or not you itemize deductions.
What is the tax treatment of employer contributions to an HSA?
Employer contributions to an employee's HSA are excludable from the employee's federal gross income, up to the maximum contribution limit for that employee. Although the employee cannot deduct the employer's HSA contributions, the contributions are not Federally taxable to the employee nor are they subject to withholding from wages for federal income tax or other employment taxes. State taxes apply in AL, NJ and CA on HSA contributions and interest earned. HSA contributions by employers are considered a type of benefit, and are therefore, tax-deductible for the employer.
Is there a catch-up contribution?
Individuals age 55 plus may make annual catch up contributions of $1,000.
What if my spouse who is also 55 wishes to make a catch up contribution?
Your spouse may make a catch up contribution as well. In accordance with IRS regulations, Sterling HSA will set up a separate account for this purpose.
Is there a deadline for contributions to an HSA for a taxable year?
Contributions for any taxable year can be made in one or more payments, at any time prior to the deadline, without extensions, for filing your federal income tax return for that year, but not before the beginning of that year. For calendar year taxpayers, this deadline for contributions is generally April 15 following the year for which the contributions are made.
What happens when HSA contributions exceed the maximum amount that may be deducted or excluded from gross income in a taxable year?
An "excess contribution" (a contribution made by you or your employer that exceeds the amount allowed by law) is not deductible by you or your employer and is included in your gross income if made on your behalf by your employer. An excise tax of 6% for each taxable year is imposed on excess individual and employer contributions.
If the excess contributions for a taxable year and the net income attributable to such excess contributions are paid or distributed to you before the deadline (without extensions) for filing your federal income tax return for the taxable year, then the net income from the excess contributions are included in your gross income for the taxable year in which the distribution is received. However, the excise tax would not be imposed on the excess contributions nor would the distribution of the excess contributions be taxed. Allowable rollover contributions do not count in determining whether an excess contribution has been made.
Are rollover contributions to HSAs permitted?
Rollover contributions from MSAs and other HSAs into an HSA are permitted. These rollover contributions to your HSA need not be in cash and are not subject to the annual contribution limits. Rollovers from an IRA are permitted once in a lifetime and cannot exceed the maximum contribution limits for that calendar year. Rollovers from a health reimbursement account ("HRA") or a health flexible spending account ("FSA") to your HSA are permitted and are in addition to the maximum contribution limits. There are strict IRS requirements and limitations that apply to FSA rollovers.
Can you pledge any part of your HSA as security for a loan?
Any portion of your HSA that you pledge as security for a loan will be treated as a distribution for the year the pledge is made. The amount pledged is includable in your gross income and a 10% premature distribution penalty tax on the pledged amount may also be imposed.
Do HSA administration and account fees count toward the maximum annual contribution limit?
If such fees are paid directly to your HSA trustee or custodian by you or your employer, the fees are not considered contributions to your HSA and do not count toward the maximum annual contribution limit. If, instead, you authorize your HSA trustee or custodian to withdraw payment for such fees from your HSA, the amount withdrawn does not increase the maximum annual contribution limit. For example, if your maximum annual contribution limit is $3,000 and a $50 administration fee is withdrawn from your HSA, your annual contribution limit remains at $3,000. It does not increase to $3,050.
Will Sterling HSA provide tax advice in connection with your HSA?
Sterling HSA does not provide tax advice concerning your HSA. It is your sole responsibility to determine the tax consequences of establishing an HSA. Please discuss any questions you may have with your tax advisor.
How are HSA contributions treated for tax/payroll purposes?
HSA contributions can be made pretax unless you are dealing with an individual or an employer who does not have a Section 125 Plan or Premium only Plan document that allows these dollars to be deducted on a pretax basis. Even in the event that one of the situations above is the case an HSA accountholder can still make an HSA contribution post tax and then deduct it from their W2 at the end of the year.
HSA contributions are Federally tax free. State taxes apply in AL, NJ and CA on contributions and interest earned.
Technically HSA contributions through a 125 cafeteria plan by salary reduction are treated as employer contributions - that is why they are excluded from income and wages. While most people consider salary reduction amounts as "employee contributions", technically, this is not the case - they are reported as employer contributions.
Salary reductions for health insurance are typically reported in box 12 - employees may need this information if State or local taxes do not exclude such amounts. Some employers may also include employer contributions to health insurance in box 12, so that employees know what they are receiving. A good HSA administrator will automatically issue tax documents to all accountholders so they may add all HSA contributions onto their State tax return. Ultimately it is the account holder responsibility to report all HSA contributions.
What is meant by the testing and recapture period?
The idea of a "testing period" and "recapture rules" is to prevent an HSA accountholder from getting more of a tax deduction for HSA contributions than he/she is entitled.
The IRS testing period is a requirement where an individual, enrolled in a high deductible health plan (HDHP), has to remain on the HDHP until 12/31 of the following year to not be "over contributed" in their HSA. To satisfy the testing period, if you enrolled in a HDHP/HSA anytime other than January 1, you must remain on the health plan until December 31 of the following year. For example, if you enroll June 1, 2009 into the HDHP, you must stay on the health plan until December 31, 2010. Failure to satisfy the "testing period" will require you to pro-rate your contribution by the number of months you were eligible for an HSA contribution under your HDHP. Any "excess contribution" subjects you to taxes and penalties. Please contact Sterling to return the excess contribution, if you need to do so.