Plan Compensation definition and HSA

[pmacduff]

Also posted this under HSA Accounts, but I guess it relates more to the 401(k) Plan!

Plan compensation is defined as W-2 compensation plus all pre-tax deductions; excluding bonuses.

Employer contributes to an HSA for the employee. Are the employer contributions to the HSA considered part of the employee's gross wages?

[12AX7]

I'm not an HSA expert, but to my understanding if certain guidelines are followed, the employer contribution portion to an HSA account is not taxable to the employee. More relevant perhaps is the definition of compensation in the plan and what it perhaps excludes for plan purposes. Based on the definition you reported, it appears only bonuses are excluded.

Edit - there may be an exception for benefits to a spouse or family memeber of the employee, where in this instance the contribution would show up on the W-2, but I think you are only referring to employer contributions made on an employee's behalf.

[pmacduff]

Thank you 12AX7 - yes - I am referring only to the portion paid by the Employer to the HSA. Do you know where I might find information i.e. your statement that "if certain guidelines are followed, the employer contribution portion to an HSA account is not taxable to the employee."? I've been all over the IRS website and looking through all the regs on compensation definitions.

We believe per the definition in this document that only bonuses are excluded, however we have an auditor (5500 Accountant audit, not IRS) that is telling the client that the Employer piece of the HSA contribution should be excluded from the Plan Compensation for 401(k) and safe harbor match calculations.

[12AX7]

I read thourgh Publication 969, which leads you to where the deduction for the employer contributions occur. There is no reference to employees including these amounts on W-2. You may also want to take a look at IRB 2008-29. For the auditor to claim that an HSA contribution is not part of the included plan comp definition assumes, a) that these amounts are reported as W-2 comp for the year, and b) the plan would exclude these amounts as comp.

Assuming that no portion of the employer contribution of the HSA is reflected on the W-2, is the auditor perhaps confusing themselves with the pre-tax employee portion? If that is true, then there is no exclusion for that definition of comp. The client or payroll company should know if any part of the employer contribution is on the W-2.

The easiest part of this equation is to first determine that no HSA employer contribution is part of the W-2.

Edit - here are the guidlines for making employer contributions to an HSA. Not sure these have been updated since 2005. http://www.gpo.gov/fdsys/pkg/FR-2005-08-26/pdf/05-16941.pdf

[QDROphile]

Do you think that HSA contributions are "pre-tax deductions"? First, I never trust the term "pre-tax" because it does not have a precise meaning. But my notion of pre-tax deduction as commonly used is along the lines of elective deferrals under 401(k) and salary reduction under 125, not employer provision of nontaxable benefits under section 105 (except to the extent provided under 125). The auditor apparently believes that employer HSA contributions (not through section 125) are not W-2 compensation (do we all agree on that?) and not "pre-tax deductions". Hence my question, what is a "pre-tax deduction"?

[BG5150]

Aren't the ER contribs on the W2? Box 12, code W (or DD?).

[pmacduff]

These ER contributiions are on the W-2 in box 12 with a Code of W as BG5150 indicates.

[QDROphile]

Is Box 12 considered compensation for retirement plan purposes?

[BG5150]

Is Box 12 considered compensation for retirement plan purposes?

Sometimes. Depends on what's in there. Code D, most of the time. J, nope.

[pmacduff]

Thank you all for your replies.

The client tells me that the Box 12 amount with Code W is the total of the Employer and Employee portions of the HSA contributions. These W-2 forms were prepared by a large national payroll provider.

So - not subject to employment taxes I follow that....but is that figure part of gross compensation? Most are saying no?? I thought this would be straightforward but I'm not sensing that........

[QDROphile]

My point is that employer HSA contributions are not likely to be in a plan's definition of "W-2 compensation" in terms used by the original post and they are certainly not within most everyones' understanding "gross wages" as used in the original post. To put it another way, the auditors are probably correct.

[pmacduff]

Attached are the pages from the Trust Doc (definition of comp) and the AA if anyone is interested. The fact that the client tells me that both Employer and Employee contributions to the HSA were included in the W-2 Box 12 amount & coded "W" is causing me some concern. Wouldn't at least the employee piece of the HSA be included in the gross compensation?

Thank you again to everyone for your comments and insights!

DOC061413.pdf