Employers may choose to make contributions to their employees’ HSAs as part of a Section 125 plan (also known as a “cafeteria plan” or a “salary reduction plan”). Employers gain greater savings by allowing their employees to contribute on a “pre-tax” basis to their own HSA via payroll deduction.
What is the difference between a HSA and a cafeteria plan?
For employees, cafeteria plans have a tangible benefit too. HSA contributions are always exempt from federal and state income taxes (in almost all states). Also, employers don’t have to pay these payroll taxes on their employees’ pre-tax contributions through a cafeteria plan.
How much does your employer contribute to your HSA?
The answer can vary widely, but the average annual employer contribution for Health Savings Accounts (HSAs) and Health Reimbursement Accounts (HRAs) is around $600 for individual employees, and $1,250 for employee family plans.
Can a cafeteria plan contribute to an employer’s HSA?
When contributing to any employee’s HSA outside of a cafeteria plan, an employer must make comparable contributions to the HSAs of all comparable participating employees. HSA contributions made through a cafeteria plan do not have to satisfy the comparability rules, but are subject to the Section 125 non-discrimination rules for cafeteria plans.
How does an employer contribute to an employee HSA?
Employers may contribute to employee-owned HSAs whether the account is part of the employer-sponsored Section 125 Cafeteria Plan HSA or setup directly by the employee. The best way for an employer to make contributions to employee-owned HSAs is through a Section 125 Cafeteria Plan; however, direct employer contributions are permitted.
Is there such a thing as a cafeteria plan?
Cafeteria Plans are not unique to HSA’s; in fact, it is a general term used to describe pre-tax contributions made by your employer. They can be established for a variety of employee related savings or expenses.
Where to put cafeteria plan contributions on form 8889?
The correct place to put contributions made through a cafeteria plan is on Line 9 of Form 8889, which is called “Employer Contributions”. This makes sense because, in our discussion above, we saw how cafeteria plan contributions look a lot like employer contributions.
