TAX IMPLICATIONS?
1. What is the tax treatment of the HSA contribution?
Contributions made by an eligible individual to a HSA (which are subject to the limits) are deductible by the eligible individual in determining adjusted gross income (i.e., "above-the- line"). The contributions are deductible whether or not the eligible individual itemizes deductions. However, the individual cannot also deduct the contributions as medical expense deductions under section 213.
2. What is the tax treatment of contributions made by a family member on behalf of an eligible individual?
Contributions made by anyone on behalf of an eligible individual to a HSA (subject to the limits) are deductible by the eligible individual in computing adjusted gross income. The contributions are deductible whether or not the eligible individual itemizes deductions. An individual who may be claimed as a dependent on another person's tax return is not an eligible individual and may not deduct contributions to a HSA.
3. What is the tax treatment of employer contributions to an employee's HSA?
In the case of an employee who is an eligible individual, employer contributions (provided they are within the limits) to the employee's HSA are treated as employer-provided coverage for medical expenses under an accident or health plan and are excludable from the employee's gross income. The employer contributions are not subject to withholding from wages for income tax or subject to the Federal Insurance Contributions Act (FICA), the Federal Unemployment Tax Act (FUTA), or the Railroad Retirement Tax Act. The employee cannot deduct employer contributions on his or her federal income tax return as HSA contributions or as medical expense deductions under section 213.
4. What is the tax treatment of a HSA?
A HSA is generally exempt from tax (like an IRA), unless it has ceased to be a HSA. Earnings on amounts in a HSA are not includable in gross income while held in the HSA (i.e., inside buildup is not taxable). There are other additional rules regarding the taxation of distributions to the account beneficiary, in the event of death.
