HSA Contribution Rules
- Contribution to HSA can be made by the employer or the individual, or both - If made by the employer, it is not taxable to the employee (excluded
from income and wages)
- If made by the individual, it is an "above-theline" deduction
- Can be made by others on behalf of individual and deducted by the individual - Maximum amount that can be contributed (and deducted) to an HSA from all sources - lesser of:
- Amount of HDHP Deductible or Maximum specified in law (indexed annually)
- $2,600 (self-only coverage) - 2004
- $5,150 (family coverage) - 2004
| Deductible | Maximum HSA Deposit (2004) | |
| Single Coverage | $1,000 | $1,000 |
| $1,500 | $1,500 | |
| $2,000 | $2,000 | |
| $2,500 | $2,500 | |
| $3,000 | $2,600 | |
| Family Coverage | $2,000 | $2,000 |
| $3,000 | $3,000 | |
| $4,000 | $4,000 | |
| $5,000 | $5,000 | |
| $6,000 | $5,150 | |
- Special deduction rules for family coverage where there is a separate individual embedded deductible amount for each family member of at least the minimum contribution limit for family coverage ($2,000 in 2004) and an overall umbrella deductible amount for the whole family.
- Maximum contribution is the lower of: - Maximum contribution limit for family coverage ($5,150 in 2004)
- The umbrella deductible amount
- The embedded individual deductible multiplied by the number of family members covered by the plan
- If the embedded individual deductible is less than the minimum contribution limit for family coverage, then the insurance is not a qualifying HDHP
- For individuals age 55 and older, additional "catch-up" contributions to HSA allowed
- 2004 - $500
- 2005 - $600
- 2006 - $700
- 2007 - $800
- 2008 - $900
- 2009 and after - $1,000 - Contributions must stop once an individual is enrolled in Medicare
- The total amount of contributions to an HSA are based on the number of months that the individual is covered by an HDHP as of the first day of the month.
- 3 months of HDHP coverage with an annual high deductible amount of $1,200 will mean that the
maximum contribution will be 3/12ths of $1,200 or $300. - Also applies to "catch-up" contributions
- Age 55 for 6 months in 2004 will mean a $250 catchup contribution permitted
(Revised August 18, 2004) - Contributions to the HSA in excess of the contribution limits must be withdrawn by the individual or be subject to an excise tax
- A pro-rata portion of earnings must be withdrawn also
- Pay income tax on the withdrawn amount, but no 10% penalty - If the HSA maximum contribution limit was not reached for the year, any other withdrawal for the year (that is not for qualified medical expenses) will not be considered "excess HSA contributions" and that withdrawal will be subject to both income tax and the 10% penalty
Employee contributions to an HSA
- Can be made by a salary reduction arrangement through a cafeteria plan (125 plan)
- Elections to make contributions through a cafeteria plan can change on a month-by-month basis (unlike salary reduction contributions to an FSA)
- Remember that contributions to the HSA through a cafeteria plan are "pre-tax" and not subject to individual or employment taxes.
- Employer can automatically make cafeteria plan contributions on individuals' behalf unless the individual affirmatively elects not to have such contributions made ("negative elections")
(Revised August 18, 2004)
Employer contributions to an HSA
- Are always excluded from employees' income (pre-tax)
- Must be "comparable" for all employees participating in the HSA
- If not comparable, there will be an excise tax equal to 35% of the amount the employer contributed to employees' HSAs - The self-employed, partners and S-Corporation shareholders are generally not considered employees and cannot receive an employer contribution
- They can make deductible contributions to the HSA on their own - Comparable contributions are contributions to all HSAs of an employer:
- which are the same amount
or
- which are the same percentage of the annual deductible - May count only employees who are "eligible individuals" covered by the employer under the HDHP and who have the "same category of coverage" (i.e., self-only or family)
- No other classifications of employees are permitted - Part-time employees can be tested separately
- "Part-time" means customarily employed fewer than 30 hours per week - Employer matching contributions to the HSA through a cafeteria plan are not subject to the comparability rules
-But cafeteria plan nondiscrimination rules apply
-contributions cannot be greater for higher paid employees than they are for lower paid employees
-contributions that favor lower paid employees are OK - Employer contributions to an HSA based on an employee's participation in health assessments, disease management program
or wellness program do not have to satisfy the comparability rules if the employee may elect to receive that payment
in currently taxable cash rather than having a nontaxable contribution to the HSA
- Cafeteria plan nondiscrimination rules also apply
Violations Of the Commparability Rules
- Extra contributions to an HSA on account of employees who meet a specified age or qualify for the catch-up contributions
- Contributions based on length of service
Information as of 2004