Cafateria aka Sec 125, HDHP premiums, HSA

[ytwiggy]

Hi All;

When I worked for an employer who offered health plans, the premiums were deducted from my pay "pre-taxed" under the Cafeteria aka section 125 rule.

I now work for a small company who does not offer health insurance of any kind.  I obtain my HDHP through my state market place.  I was told by my market place insurance agent I could put my premium money into my HSA and than pay the premiums from there - He gave me the following info: IRS regulations Pub 502, medical expenses include premiums that cover insurance used to cover medical care...

It seems to me, if an employee can take the benefit of pretax dollars being used for premiums, a pink-collar worker should have the same benefit, but my insurance carrier says otherwise.

Thanks for your thoughts and considerations

[BillM223]

"When I worked for an employer who offered health plans, the premiums were deducted from my pay "pre-taxed" under the Cafeteria aka section 125 rule."

Yes, but it is more normal now to code the dollars paid towards health insurance premiums using code DD in box 12 (Section 125 stuff appears in box 14 on the W-2).

"I was told by my market place insurance agent I could put my premium money into my HSA and than pay the premiums from there"

Absolutely true.

"It seems to me, if an employee can take the benefit of pretax dollars being used for premiums, a pink-collar worker should have the same benefit, but my insurance carrier says otherwise."

But a "pink-collar" worker (I haven't hear that phrase before) CAN use pre-tax dollars to pay for health insurance premiums. 

You see, when you contribute to an HSA, you receive an above-the-line tax deduction for any HSA contributions made directly to your HSA (I assume that your current employer is not handling the HSA contributions for you, but they could). This makes the HSA dollars "pre-tax".

So, by contributing to an HSA, then using the HSA dollars to pay the health insurance premiums, then you have used pre-tax dollars to do so.

Make sense?

[ytwiggy]

Thanks BillM223 for your reply - and yes that does make sense to me.

I'm concerned that if I should ever get audited (by random picking, not because I have anything unusual that would put me at risk of an audit), that it will be disallowed.  This is exemplified by the fact that health insurer is giving me a hard time accepting payment via my HSA, saying that it is not allowed.

So do you think this logic will hold up in an audit? (I do)

FYI (from Wikipedia) "A pink-collar worker is also a member of the working class who performs in the service industry. They work in positions such as waiters, retail clerks,..."

[BillM223]

I owe you an apology.

I am glad you came back, because I now see that only some health insurance premiums are payable from your HSA. I routinely pay for my long-term care premiums from my HSA (which is permitted), but the Tax Code explicitly says that you can't use HSA to pay for health insurance premiums EXCEPT in these four cases;

1. Long-term care insurance.

2. Health care continuation coverage (such as coverage under COBRA).

3. Health care coverage while receiving unemployment compensation under federal or state law.

4. Medicare and other health care coverage if you were 65 or older (other than premiums for a Medicare supplemental policy, such as Medigap).

(see IRS Pub 969)

Unfortunately, this does not include Marketplace insurance, even though you normally pay part of it with after-tax dollars.

So, unless you qualify for one of the 4 exceptions above, no using HSA funds for your Marketplace policy. Any chance that some of the premiums were paid between jobs while you were on COBRA or on unemployment?

[ytwiggy]

Without the Market Place I would have no insurance - therefore I consider it Healthcare continuation coverage, but I'm guessing the IRS doesn't agree with this?

I was and still am considered an Essential Worker, so no unemployment for me during the pandemic.

I'm guessing reimbursement to myself from the HSA for paying my premiums with taxed dollars is out as well?

Thanks for all your help

[BillM223]

Don't blame the IRS - the Tax Code is written by Congress. The IRS just has the miserable job of trying to figure how to make the Tax Code work.

"Without the Market Place I would have no insurance - therefore I consider it Healthcare continuation coverage, but I'm guessing the IRS doesn't agree with this?"

No, they mean actual COBRA (insurance required to be offered by your employer for up to 18 months after you leave a job, or perhaps are laid off from a job). And they mean that you have to actually be receiving unemployment from your state.

"I'm guessing reimbursement to myself from the HSA for paying my premiums with taxed dollars is out as well?"

Yes, for the same reason.

If you ever found yourself working as a contractor instead of as an employee, then you would be "self-employed" and able to deduct your health insurance premiums as an above-the-line deduction.

Thank you for being Essential, even if they do not appreciate you.

[ytwiggy]

Thanks Bill for staying with me through all of this - you are a great help!!