Why process HSA savings through the Section 125 Plan?
Employers gain greater savings through a Section 125 Plan by allowing their employees to contribute on a pre-tax basis to their own HSA via payroll deduction. In addition:
- Employer contributions can generally be excluded from federal income tax, Social Security tax, Medicare tax, Federal Unemployment Tax (FUTA) and state unemployment taxes.*
- Employers also derive HSA tax benefits by not paying Social Security tax, Medicare tax and FUTA on their employees' contributions. These tax savings are only achievable through the Section 125 plan.
- Employers contributing through a Section 125 plan are not subject to the comparability rules, but are subject to a different set of rules that require the employer to ensure the contributions do not favor highly compensated employees. If an employer chooses to offer "Matching Contributions," it must be done through a Section 125 plan.
*Neither UMB Bank n.a., nor its parent, subsidiaries, or affiliates are engaged in rendering tax or legal advice and this list is not intended as tax or legal advice. All mention of taxes is made in reference to federal tax law. States can choose to follow the federal tax-treatment guidelines for HSAs or establish their own; some states tax HSA contributions. Please check with each state's tax laws to determine the tax treatment of HSA contributions, or consult your tax adviser. Additional federal and state forms may be required.