Employer FAQs

To open and contribute to an HSA, an employee must meet the following IRS requirements:

• The employee is enrolled in a High-Deductible Health Plan (HDHP) as defined by IRS guidelines.
• The employee is not enrolled in Medicare, Tricare, or VA benefits.
• The employee is not claimed as a dependent on someone else’s tax return.
• The employee does not participate in a general-purpose FSA or HRA (with the exception of a Limited Purpose FSA/HRA).

Employers benefit from lower payroll taxes

• Employer HSA contributions that are not included in employees’ income are not subject to federal income tax, or Social Security or Medicare taxes (commonly known as FICA tax). The FICA tax savings for employers alone can be so substantial that many employers choose to increase their employer HSA contributions to maximize their FICA tax savings. This approach can be a smart strategy for increasing your employees’ total compensation while staying focused on your bottom line.

Employer HSA Contributions are tax-deductible as a business expense.

Tax Free Contributions

• Employer contributions to HSAs are excluded from employees' gross income and are not subject to federal income tax, Social Security, or Medicare taxes.

Boost savings and spending power

• Additional contributions from an employer increase employees' ability to cover qualified medical expenses and grow their HSA balance over time. Employees can also make contributions outside of payroll deductions. HSA balances rollover annually and with HSA Central, they can be invested to achieve long-term growth.

Helps Maximize IRS Limits

• Employer funds count toward the individual's annual HSA Limit. Employers are not responsible for tracking external contributions, but HSA Central can help prevent over-contribution if the employee coverage level is reported correctly. Employer contributions increase the employee's total contributions while staying within established IRS parameters.

W-2 Reporting of Contributions

• Employers must report both employer and employee HSA contributions on their W-2 form. Employer contributions to employee HSA accounts are excluded from taxable income but still require reporting.

Contribution Monitoring & Comparability

• To ensure compliance with the IRS, employers are responsible for tracking contributions. Employers should confirm that their scheduled HSA contributions are funded accurately and on time. Employers should also reconcile the accounts, meaning that payroll deductions and employer deposits should match the amounts posted to employees’ HSA accounts. If the employer does not have a cafeteria plan, they must also comply with nondiscrimination ("comparability") rules, so benefits are not weighted unfairly toward high earners.

Supporting Form 8889 Filings

• While employees complete Form 8889 for their tax returns, employer recorded HSA contributions flow through payroll systems and W-2 reporting to support accuracy and compliance.

Employee Identity Verification and Monitoring

• Employers must verify employee identity when prompted to comply with federal regulations such as the USA PATRIOT Act. Ongoing identification monitoring helps to prevent fraud and ensures that contributions are credited to the correct account.

ERISA (Employee Retirement Income Security Act of 1974) Coverage for HSAs with Investment Advice

• Generally, HSAs are not subject to ERISA, but if the employer provides investment advice regarding an employee's HSA funds, the employer may become a fiduciary under ERISA due to the 2024 Dept. Of Labor fiduciary rule.

How to Avoid Crossing into Fiduciary Territory

• Employers remain non-fiduciaries when providing neutral investment education such as explaining fee structures or investment options. If an employer recommends specific investment decisions or handles and employee's funds directly, they are subject to fiduciary obligations.

HSA Sponsorship Duties under ERISA

Employer-sponsored HSAs, when part of a group health plan, involve certain ERISA considerations:

• Acting prudently and loyally when selecting HSA custodians and vendors
• Monitoring fees, service quality, and any conflicts of interest
• Documenting decisions and disclosures
• Ensuring compliance with regulatory changes

HSA Central can accept files from your Benefits Administrator!

• HSA Central offers a simple solution for creating HSA accounts for your employees. We can work with your designated Benefits Administrator to import your employees into our system via file feed, making it simple to determine each employee’s employment status and coverage level.