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HSA FAQ’s for Businesses

Q. Can the employer and employee make contributions to the HSA at the same time? A. Yes, federal regulations allow for both the employer and the employee to make HSA contributions to an account in any one tax year.

Q. What happens if an employer or employee forgets to make an HSA contribution? A. Contributions can be posted to the HSA any time before April 15th or when taxes are posted the following year.

Q. Can employees contribute directly to their account with a check? A. It depends on how the HSA is set up. If the HSA is offered through a cafeteria plan, contributions will be made by the plan administrator. If the HSA is not set up with a cafeteria plan, an employee may make contributions with a check.

Q. What happens if a claim is incurred after the employee’s policy add-on date, but prior to the HSA effective date? A. For contribution purposes, the HSA is effective the first of the month following an employee add-on to an HSA plan. Qualified medical expenses will be reimbursed from the HSA retroactive to the date the employee was added to the HSA plan. Example: An employee who is added to the policy on 3/15 can begin contributing to the HSA on 4/1, but will still be reimbursed for services rendered on 3/16.

Q. How can an employer afford to make HSA contributions for employees? A. Because HSAs must be coupled with a high deductible health plan, the health insurance premiums can be substantially lower. Employers often find that these premium savings are large enough to cover the HSA contributions they make on behalf of their employees, without increasing their current outlay for health care benefits. This has been verified by the Treasury Department.

Q. If the employer gives employees a bonus, can this amount be put into the HSA? A. Bonuses may be given and employees can choose to deposit some or all of the amount into their HSA (as long as the maximum annual contribution is not exceeded).

Q. Can the amount of employer funding vary based on classes of employees? A. No, there are comparability rules that must be followed when funding the HSA. In general, 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 the same amount or the same percentage of the deductible under the plan.

Q. If the employee has an HDHP with family coverage, but his or her spouse is not covered under that plan or other family coverage, can the employee still contribute to the family maximum under the employee’s plan? A. Yes, if the spouses file joint tax returns or agree to aggregate their contribution maximums that way. Otherwise, the employee’s contribution maximum will be one-half of the family maximum under the employee’s plan.

Q. May an employer who does not provide health insurance for its employees contribute to an employee’s HSA? A. Although the new HSA law expressly permits an employer to contribute funds to an employee’s HSA on a tax-favored basis, the ERISA implications are not yet clear. There are many questions yet to be answered regarding how ERISA’s reporting, claims procedures, disclosure, fiduciary duty and other requirements apply to employee-controlled HSAs when an employer makes contributions. Because of these uncertainties, we are not recommending that our agents promote employer contributions to employee HSAs where the employee is covered by a qualified health plan that the employer does not sponsor.

Q. How do employees sign up for the HSA? A. Once the employer has decided to purchase a qualified HDHP, each employee must enroll. Contact your HSA institution for details about enrollment periods, and the enrollment process.

Q. Can employees contribute directly to their account with a check? A. It depends on how the HSA is set up. If the HSA is offered through a cafeteria plan, contributions will be made by the plan administrator. If the HSA is not set up with a cafeteria plan, an employee may make contributions with a check.

Q. What happens if a claim is incurred after the employee’s policy add-on date, but prior to the HSA effective date? A. For contribution purposes, the HSA is effective the first of the month following an employee add-on to an HSA plan. Qualified medical expenses will be reimbursed from the HSA retroactive to the date the employee was added to the HSA plan. Example: An employee who is added to the policy on 3/15 can begin contributing to the HSA on 4/1, but will still be reimbursed for services rendered on 3/16.

Q. What happens to the HSA balance if the employee leaves the company? A. The HSA belongs to the employee. Therefore, unspent HSA funds remain with the individual. Account holders can still use their HSA money to pay for qualified medical expenses, or continue to let it grow tax-deferred. Account holders cannot, however, make contributions to the HSA unless an HSA-qualified insurance plan is in place.

Q. What discrimination rules apply to HSAs? A. If an employer makes HSA contributions, the employer must make available comparable contributions on behalf of all “comparable participating employees” (i.e., eligible employees with comparable coverage) during the same period. Contributions are considered comparable if they are either the same amount or same percentage of the deductible under the high deductible health plan.

Q. What reporting is required for an HSA? A. Employer contributions to an HSA must be reported on the employee’s Form W-2. The IRS will release forms and instructions on how to report HSA contributions, deductions, and distributions (withdrawals).