Jump to content

Pre-Tax contribution?


Guest agordon

Recommended Posts

Guest agordon

I'd like to confirm some information I've heard about HSAs. It was my understanding that the employee contributions to an HSA could be taken directly out of payroll, but would not be pre-tax. The contributions to the HSA would come out of the employee's pay post tax, but then the employee would be able to deduct their contribution on their individual tax return.

My co-worker was told that contributions could be handled either way - the employer can either treat them as pre-tax deductions on the payroll, or treat them as post tax and then the employee can take the deduction. In such a situation, sounds to me like it would be up to the employer as to how to handle these.

Could someone please help clear this up for me?

Thanks in advance for your help!

Link to comment
Share on other sites

HSAs can be funded through a cafeteria plan so the amounts would not be included in employee taxable income, but the contributions to the HSA would be treated as employer contributions so the individual could not deduct them. As you suspect, the law is not so dumb as to allow double dips.

Link to comment
Share on other sites

You can either pre-tax through the cafeteria plan or pay after tax (even through payroll deduction) and take the deduction on your 1040. Take your pick.

The difference is that pre-tax is a salary reduction while after tax is a salary deduction. Pre-tax can only be done on a payroll and then only through a cafeteria plan. After tax can be out of pocket or even deducted from the payroll just like your union dues or credit union contribution.

Pre-tax has the immediate tax benefit whereas after tax must wait on your tax return to be filled out.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

Link to comment
Share on other sites

There are different tax consequences for pre and after tax contributons. Pre tax contributions are exempt from both income and the 7.65% FICA tax. After tax contributions are deductible only from income tax as a reduction of AGI and an employee can adjust withholding allowances on the w-4 to reduce withholding on the amount of after tax contributions. There is no need to wait until the income tax return is filed to receive the tax benefit from after tax contributions.

mjb

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
×
×
  • Create New...