TAX TREATMENT OF CONTRIBUTIONSEmployee Contributions: Contributions by an eligible individual to an HSA are deductible in computing adjusted gross income. Accordingly, the contributions are deductible whether or not the eligible individual itemizes deductions. IRC § 223(a). Employer Contributions: Contributions by an employer to an eligible individual’s HSA (including pre-tax contributions made through an IRC § 125 cafeteria plan) are treated as employer-provided coverage under an accident or health plan, excludable from gross income and are not subject to income tax withholding. IRC §§ 106(d); 3401(a)(22). Employer contributions are not subject to FICA. Notice 2004-2, Q & A 19. HEALTH SAVINGS ACCOUNTS HSA’s CATCH UP CONTRIBUTIONSIndividuals who have attained age 55 before the close of the taxable year and are not Medicare eligible (e.g., age 65) may contribute an additional $500 (calculated on a monthly basis) to an HAS for 2004 ($600 for 2005, $700 for 2006, $800 for 2007, $900 for 2008, $1,000 for 2009 and beyond). IRC § 223(b)(3). COORDINATION OF CONTRIBUTION LIMITS WITH RESPECT TO OTHER ACCOUNTS OR ARRANGEMENTS Maximum contributions allowed to an HSA for any given year are reduced by any contributions made to an Archer MSA in the same year. IRC § 223(b)(4)(A). NONDISCRIMINATION RULEAn employer who makes contributions into an HSA for any employee is required to make comparable HAS contributions for all comparable participating employees. IRC § 4980G. The comparability requirement does not apply to contributions made through an IRC § 125 cafeteria plan or by rollover from HSAs or Archer MSAs. Notice 2004-2, Q & A 32. The IRS has asked for comments on application of the IRC § 125 cafeteria plan nondiscrimination rules to HSAs offered under a cafeteria plan. For purposes of the comparability require-ment, contributions on behalf of part-time employees (those customarily employed for fewer than 30 hours per week) are tested separately. IRC §§ 4980G; 4980E(d)(4). PERMISSABLE ACCOUNT BENEFITSReimbursement of qualified medical expenses (as defined in § 213(d) of the IRC) (including OTC drugs) pertaining to the account beneficiary, spouse, or any qualifying dependents, but only to the extent that such amounts are not compensated for by insurance or otherwise. IRC § 223(d)(2)(A). | |
<<<<< Click to go Back to Page 2 | |