What does the employer need to report if they make contributions to the HSA or allow employees to make payroll contributions on a pre-tax basis?

Both employer HSA funding and employee pre-tax payroll deductions to their HSA are considered employer contributions for both the employer’s Section 125 non-discrimination testing and reporting pre-tax contributions on the employee’s W-2 forms. Employer HSA contributions and all employee payroll deductions should be added together and reported in Box 12, and coded with a “W” on the employee’s W-2 form. IRS Publication 969‡ indicates that employee contributions made by the employer via salary reduction (pre-tax payroll contributions) are not included in the employee’s income. This means these contributions should not be included with income in Box 1.

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