HSA Information for Employers

Why Should an Employer Offer a HSA Plan?

Employer Participation - The Most Common Questions

Tax Treatment of Health Savings Account (HSA) for Employers

Setting Up Your Payroll For HSAs

Coordinating with Cafeteria & Flexible Benefit Plans

HSAs Can Exist Above ERISA Rules

Starting an Health Savings Account

Setting Up Your Payroll For HSAs
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• Obtain Employer Identification Number (EIN) for your business. You must do this if you plan to pay wages to at least one other person beside yourself. To apply for a number, use IRS form SS-4. You can do this online.
  
• Decide how frequently you’ll issue paychecks (Weekly? Biweekly? Monthly?).
  
• Decide which of your workers are full time employees. Some of your help may wish to be paid as independent contractors, if eligible.
  
• Obtain a completed withholding application (W-4 form), Social Security Number, for each employee.
  
• Make a note to file 1099s for each independent contractor you expect to pay more than $600 in this tax year.
  

Working With the W-2

Each employee gets a W-2 by January 31st for the previous tax year. Copies of each employee’s form are also sent to the IRS in early February, along with a summary sheet, the Transmittal of Wage And Tax Statements, also known as IRS Form W-3. Employees who leave your company before the tax year is over may also request a copy of their W-2 earlier, so they can see what the total taxes were relating to their employment.

Wages (plus tips and compensation) for each employee are totaled for the year in Box 1. The amount of wages subject to Social Security (the first $87,900 of wages) goes into Box 3. The amount of wages subject to Medicare tax (everything after the first $400) goes into Box 5.

The amount of withholding for each tax (Box 2, 4, 6) should equal the amount you’ve already paid in monthly and quarterly installments. For how to calculate withholding, see IRS publication #15-T.

Not everyone will use Boxes 7-11. These report Social Security paid on tips and gratuities, hardship advances for those who will qualify for the Earned Income Tax Credit (EIC).

“Non-Qualified Plans” are other payouts made by the employer on behalf of the employee that may not be tax-exempt from FICA or other payroll taxes. These include distributions from pension plans, IRAs, and profit-sharing plans. For example, if an employee leaves and “cashes out” vested pension funds, the sum is noted on the W-2, and the employee will be responsible for the taxes.

Where then, are the deductions for a company’s contributions to an employee’s HSA? They are tucked away in Box 12, and identified with a special code “W.”

Under Code “W”
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Box 12 is the section reserved for payments that generally will be tax-exempt from gross income, and hence from gross income taxes. These include income deferred via a 401(k) plan (Code “D”), Moving Expenses (Code “P”) and salary reductions to a SIMPLE (Code “S”).
Employer contributions to a Health Savings Account are Code “W.” So, in Box 12, if you made a $200 contribution to a worker’s HSA, you’ll indicate this by “200.00 W”.

If you do a W-2 for yourself or a spouse, this is where you will indicate your contribution to your own HSAs. If you contributed $4,500 to your HSA, write down “4500.00 W”.

On the employee’s tax return, any figure that appears in Box 12 must be matched up as a pre-tax adjustment on the 1040. This is how the IRS will track HSA deductions. This is how they make sure that when the employer makes the contribution, only the employer gets the tax benefits.

Box 13 requires you to check off squares if the worker was exempt from any withholding (part time worker or agent paid only by commissions), or “actively participated” in any qualified pension, profit-sharing, or stock-bonus plan, including 401(k) SEP or SIMPLE plans. (Again, this is an IRS match point.)

Box 14 is reserved for other adjustments, which are non-elective, such as required employer-employee matching contributions to pension plans. Another match point. Boxes 15-20 are where you report wages and withholding payments for state and local tax.

This should get your company’s accounting and payroll up to speed on HSAs.

Coordinating with Cafeteria & Flexible Benefit Plans
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Flexible benefit plansor (FSAs) can co-exist alongside of an HSA Plan, however individuals should not pay for medical expenses out of the Flex Plan (individuals may want to allocate money for dental or vision in the flex plan.)

The HSA legislation allows for individuals to contribute to an HSA through a cafeteria plan, however not enough guidance was given on the subject. In practice different Flexible Benefit administrators are interpreting it differently. Some are not allowing it, others are treating it like Insurance Premiums.
Before you setup your FSA / HSA contact Great Lakes HSA and we will walk you through the process to ensure you are compliment with the 223 regs!

 

HSAs Can Exist Above ERISA Rules
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The Employee Benefits Security Administration (EBSA) -- the administrative arm of the Department of Labor (DOL) -- issued guidance on April 7, 2004, confirming that employers can implement (and even contribute to) Health Savings Accounts (HSAs) without being subject to ERISA regulations.

Voluntary Safe Harbor Rules

According to Field Assistance Bulletin 2004-1, for an HSA program to avoid ERISA regs, it must meet the following four basic requirements:

• The program must be completely voluntary.
• An employer cannot endorse the program, but can administrate payroll functions and publicize the program.
• An employer may only receive reasonable compensation for payroll expenses.
• An employer can make no contributions (exceptions below).

There are certain circumstances in which an employer can contribute and still not be subject to ERISA. The following conditions must be satisfied:

Establishment of the HSA must be completely voluntary.

The employer cannot make or influence HSA fund investment decisions.

The employer cannot receive any compensation in connection with the HSA.

No conditions can be placed on the utilization of HSA funds beyond that permitted by the Code.

The employer must allow the employee to move funds to another HSA beyond that permitted by the Code.

The employer cannot represent that the HSAs are established or maintained by the employer.

Conclusion

This long-awaited guidance is very positive. Overall, Field Assistance Bulletin 2004-1 should help increase HSA participation.

View the Entire Document - http://www.dol.gov/ebsa/regs/fab_2004-1.html

Setting up a Health Savings Account
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What do I have to do to “establish” my account?
Your account trustee/custodian will determine what you need to do, which may include completing and processing appropriate paperwork, and making a minimum deposit.

Who can help me establish my account?
Great Lakes HSA!!!!

My bank/credit union doesn’t offer HSAs, can I be my own trustee or custodian?
No, you must establish your HSA with an approved institution.

What is the difference between an HSA “custodian” and an HSA “trustee”?
The differences between a “custodian” and a “trustee” are minor. A trust is a legal entity under which assets are actually owned and held on behalf of a beneficiary. The trustee has some level of discretionary fiduciary authority over the assets of the fund. The trustee must exercise that authority in the best interests of the beneficiary. A custodial arrangement, on the other hand, is like a trust, but the custodian simply holds the assets on behalf of the owner of the assets. Other than holding the assets and doing as the owner orders, the custodian has no fiduciary obligations to the owner. The determination of what constitutes a trust or custodial arrangement is a determination made under state law.

Can couples establish a “joint” account and both make contributions to the account, including “catch-up” contributions?
“ Joint” HSA accounts are not permitted. Each spouse should consider establishing an account in their own name. This allows you to both make catch-up contributions when each spouse is 55 or older.

Must couples open separate accounts?
If both husband and wife are eligible to contribute to an HSA, they are both eligible to establish separate HSAs. However, if both spouses want to make “catch-up” contributions when they are age 55+, they must establish separate accounts.

How soon can I open my account?
Your account can be established as early as the effective date of your HDHP coverage. However, if your coverage begins on any day other than the first day of the month, you cannot establish your account until the first day of the following month.

I want to make sure my HSA is “established” as soon as possible. Can I establish my account before my HDHP coverage begins?
You can complete all the paperwork and make a minimum deposit to your account prior to the effective date of your HDHP coverage. However, your account is not officially “established” until your HDHP coverage begins. But completing the necessary steps before your coverage begins ensures that your HSA will be “established” as early as possible. This is especially important when your HDHP coverage is effective on a non-business day.