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acl1118

Reporting Employer Contributions to Retirees' HSA

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Someone outside of my organization presented this question and am trying to help.

The company contributes to an Health Savings Account (HSA) for its retirees.
The retirees are not paid on their payroll system and do not receive a W2. A 3rd party processes the payments and produces a 1099 for the retiree payments.
The questions are:
1. How will this contribution reported to the retirees? The information should be included on the HSA administrators statement to employees.
2. Do they need to create a W2 which reports only the Employer contribution to the HSA in Box 12W?
The employer contribution is not taxable to these employees, as they are not located in any state which taxes employer HSA contributions.

Your guidance and assistance is appreciated.

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While I have never seen this fact pattern, but the 1099-MISC instructions state this under exceptions:

Payments to a tax-exempt organization including tax-exempt trusts (IRAs, HSAs, Archer MSAs, and Coverdell ESAs), the United States, a state, the District of Columbia, a U.S. possession, or a foreign government.

So it would appear that these payments should not be reported by the 3rd party administrator on a 1099-MISC. Now if and only if they were after-tax contributions, the retiree would still report them as other income, but take the deduction for the contribution. However, not if my response to 2. is correct.

1. The HSA custodian would report the contributions on a Form 5498-SA

2. Retirees can and many do participate in Section 125 plans. So if the employer routed these payments through their Cafeteria Plan. I would think they would be reported on a W-2 Box 12 Code W and the retiree would not take a deduction for this contribution.

Maybe someone a lot more knowledgeable in Section 125 plans will chime in.

 

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