Health Savings Account (HSA)

Amounts employers contribute to employees' HSAs are generally not subject to employment taxes. Employers must report the contributions in box 12 of Form W-2 for each employee. This includes the amounts the employee elected to contribute through a cafeteria plan. Enter code W in box 12.

See IRS Publication 969 for more info about HSAs.

QuickBooks Online Payroll Full Service doesn't automatically limit the annual maximum for you because plans vary widely. Please see your plan provider for your employees' eligibility and annual maximum for HSA contributions.

Both the employer and the employee can contribute to the HSA. The contributions limits for 2016 and 2017 are as follows:

• The maximum annual HSA contribution for an eligible individual with self-only coverage is $3,350 for 2016 and $3,400 for 2017.
• For family coverage, the maximum annual HSA contribution is $6,750 for 2016 and 2017.
• The catch-up contribution for individuals who are 55 or older is $1,000.
• Individuals eligible on the first day of the last month of the taxable year (December for most taxpayers) are allowed the full annual contribution plus catch-up contribution, if 55 or older by year end, regardless of the number of months they were eligible during the year. For individuals not eligible on that date, both the HSA contribution and catch-up contribution apply pro rata based on the number of months the taxpayer was an eligible individual during the year.

• For employers in California, HSAs are fully taxable. See the California Information Sheet for more info. Full Service Payroll is compliant with the California taxability.
• If you are an S-Corp participant and would like to set up a company contribution to HSA, the amount would be fully taxable. Full Service Payroll cannot currently support this because our system does not report it correctly on Form W-2.
• If it isn't reasonable to believe at the time of payment that the contribution should be excluded from the employee's income, the contribution is taxable. (For example, the contribution exceeds the annual HSA limit.) This type of contribution is subject to federal income tax withholding, Social Security, Medicare, and FUTA tax, and must be included in wages reported on the employee's Form W-2 in boxes 1, 3, and 5. Full Service Payroll cannot support this type of contribution.