Who may contribute to a Health Savings Account (HSA)?
Any person (an eligible individual, an employer, a family member, or any other person) may make contributions to an HSA on behalf of an eligible individual.
What are the rules regarding contributions made by your employer?
If an employer makes contributions to employees’ HSAs, the employer must make available comparable contributions on behalf of all employees with comparable coverage during the same period. Contributions are considered comparable if they are either of the same amount or the same percentage of the deductible under the plan. If employer contributions do not satisfy the comparability rule during a period, then the employer is subject to an excise tax equal to 35 percent of the aggregate amount contributed by the employer to HSAs for that period.
The comparability rule does not apply to contributions made through a cafeteria plan. The provision provides an exception to the comparable contribution requirements that allows employers to make larger HSA contributions for non-highly compensated employees than for highly compensated employees. For example, an employer is permitted to make a $1,000 contribution to the HSA of each non-highly compensated employee for a year without making contributions to the HSA of each highly compensated employee.
In what form may contributions be made to an HSA?
Contributions to an HSA must be made in cash. As custodian of your HSA, UMB Bank, n.a. (“UMB”) will accept contributions by check or direct deposit. UMB will also accept rollovers or transfers of assets from an Archer MSA, an HSA, an FSA, or an IRA, in accordance with the requirements of the Internal Revenue Code. The custodian will require that those rollover contributions be in the form of cash. All contributions to your HSA will initially be made to an interest-bearing HSA Deposit Account at UMB Bank, n.a. Other investments may be available within your custodial account as disclosed by us from time to time.
How much may be contributed to an HSA?
The maximum amount that may be contributed to an HSA for any year is a certain amount established by the IRS for each year (depending on whether you have single coverage or family coverage). The same annual contribution limit applies regardless of whether the contributions are made by an employee, an employer, or both. If you enroll in an HDHP January 1 through December 1 of the current tax year, you are allowed to make the full deductible HSA contribution for the year. Thus, you are allowed to make contributions for months prior to enrolling in an HDHP.
You must have coverage under a qualified HDHP and remain eligible for 12 months after the end of the calendar year in which you enrolled in an HDHP. If you are not covered by an HDHP for 12 months after the end of the calendar year in which you enrolled in an HDHP, you will be subject to income tax and a 10 percent excise tax on HSA contributions for months not covered by an HDHP.
The total contribution for the year can be made in one or more payments at any time up to your tax-filing deadline (without extensions). However, if you wish to have a contribution made between January 1 and April 15 treated as a contribution for the preceding taxable year, you may want to use the online contribution tool and check the box “prior year contribution”. If you contribute to your HSA via payroll deductions, please contact your employer for instructions on prior year contributions.
When may “catch-up” contributions be made to an HSA?
If you are age 55 or older, you can make additional “catch-up” contributions to your HSA. The amount of this additional catch-up contribution is published annually by the U.S. Treasury Department.
What is the tax treatment of an eligible individual’s HSA contributions?
When you make an eligible contribution to an HSA, the amount of your contribution (up to the maximum contribution limit discussed above) is deductible from your gross income, known as an “above the line” deduction for the purpose of computing your adjusted gross income. This means that your HSA contributions are deductible whether or not you itemize deductions. In addition, any person who may be claimed as a dependent on another taxpayer’s return may not claim a deduction for a contribution to an HSA. A special rule applies to certain married individuals. If either spouse has family coverage under an HDHP, both spouses shall be treated as having family coverage (and if spouses each have family coverage under different plans, as having the family coverage). The amount allowable as a deduction after application of this rule shall be divided equally between the spouses unless they agree on a different division.
What is the tax treatment of employer contributions to an HSA?
If you elect pre-tax payroll deductions or if your employer makes a contribution to an HSA for you, you are not allowed to deduct that contribution on your income tax return. Although you cannot deduct your employer’s HSA contribution, the contribution is not taxable to you or subject to income tax withholding or other employment taxes if it does not exceed your maximum contribution limit for that year.
When is the deadline for contributions to an HSA for any particular year?
You may make HSA contributions for a particular year no later than the deadline, without extensions, for filing your federal income tax return for that year. For calendar year taxpayers, this is generally April 15 following the year for which the contributions were made (however for the 2019 tax year, due to COVID-19 relief act, the deadline is July 15, 2020). UMB will treat any contribution made between January 1 and April 15 (July 15, 2020 for 2019 tax year) as a contribution for the current taxable year unless your employer provides notice to UMB at the time of such contribution that the contribution is for the preceding taxable year. If you contribute directly to your HSA through the HSA website, you may select “prior year contribution”.
What happens when HSA contributions exceed the amount that may be deducted or excluded from gross income?
A contribution made by you or your employer to an HSA that exceeds the amount allowed by law, or which is made during any year when you are not eligible to contribute, is called an “excess contribution.” Excess contributions are not deductible by you or your employer and are included in your gross tax for each year they remain in your HSA. In addition, excess contributions are subject to a six percent excise. However, you may avoid the excise tax if you remove the excess contribution from your HSA, together with any net income attributable to the excess contribution, before the due date for filing your federal income tax return, including extensions, for the year in which the excess contribution was made. In that case, the net income attributable to the excess contribution would be taxable as income for the year in which the distribution is made, but, the removed excess contribution would not be taxable as income to you. Rollover contributions do not count in determining whether an excess contribution has been made.
Who is responsible for determining the amount of eligible contributions?
You are responsible for determining your eligibility for an HSA and the amount of eligible contributions during any year. You are encouraged to speak with your tax adviser about these matters. As custodian, UMB has no responsibility for determining or advising you whether any contribution complies with the requirements and limitations of the Code.