Employer's Contribution to HSA

by Barbara Gulin; Updated September 26, 2017
The IRS permits employers to make contributions to employee HSAs.

High-deductible health insurance plans typically have lower premiums than traditional PPO health insurance plans and can help smaller employers continue to offer health insurance benefits to employees. The idea of having to cover the first portion of medical expenses out of pocket because of a high deductible can overwhelm some people. To help offset some of this cost, employers can choose to contribute to employees' health savings accounts.

Contribution Sources

The Internal Revenue Service permits anyone to make contributions to an individual's HSA on that person's behalf, and the individual can deduct the amount contributed to an HSA up to the permitted limit each year. The only contribution that an employee cannot deduct is that which an employer makes on the person's behalf. Employer contributions to an HSA are listed on an employee's W-2 form, but they are not counted as income.

Employer Contribution Rules

To satisfy IRS regulations, employer contributions to employee HSAs must meet compatible contribution rules or the contributions will not be tax-deductible to the employer. This means that a standard amount can be contributed to all participating employees enrolled in individual plans, and a different amount can be contributed on behalf of employees enrolled in family HSA plans. For example, an employer can contribute $75 per month to an employee-only HSA and $150 to family HSA plans. The amount that an employee contributes to his HSA through payroll deduction does not affect an employer's contribution, unless it would create excess contributions to the account.

Employer Contributions to Ineligible Employees

If an employer is making contributions to an employee's HSA and the employee ceases to become eligible for an HSA, the employer may not be able to recover the funds deposited after the employee is ineligible. It is up to the employer to confirm that deposits into an HSA stop when an employee becomes ineligible. As long as the amount deposited to an employee HSA does not result in excess contributions, the employer has no recourse.

For example, an employee participates in an individual HSA plan for six months. The total amount that can be deposited into the employee's HSA is $1,525 (half of the annual limit of $3,050). If the contributions do not exceed this amount, the employer cannot request that the funds be returned.

Excess Contributions

The only way that an employer can reclaim funds that were deposited into an eligible employee's HSA is if there are excess contributions. In the previous example, if the total contributions into the employee's HSA had been $1,800, the employer could have corrected the excess contribution error of $275. The employer can either ask the HSA trustee to return the funds to the employer or include the overage in the employee's gross income on his W-2. If contributions are made on behalf of an employee who never had an HSA, the employer can correct this error, since an HSA never existed.

About the Author

Barbara Gulin has been a freelance writer and editor since 2008. She has helped write curriculum for Asian elementary students to learn Engish and has written extensive content for Themomsresource.com. Gulin studied electrical and computer engineering at the University of Missouri, Kansas City. She is also a licensed life and health insurance agent.

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