Can an employer limit an employee's pre-tax monthly contribution to HSA ? (provided that the employee has full year HDHP coverage and still under annual HSA limit?)

[Vid]

I read through IRS publication 969, there is no monthly limit defined. I checked with the custodian bank, they mentioned all the $6750 I am allowed to contribute to my HSA can be done at one shot, need not be compelled to spread it across 24 pay cycles.
Problem is I have immediate medical bills to pay and my employer is not allowing me to put more money from my own pay cycle, which is very funny(actually makes me furious).

[Opus 17]

Since the employee payroll contribution is technically a voluntary salary reduction with the employer making the deposit, they can make any rules they want.  

However, you can take your own cash and make a deposit, then collect the tax savings at the end of the year instead of getting the savings in each paycheck.  

Or, if you can do 10 equal payments of $650 for the rest of the year, you can pay the bill now with other money and take the $6500 back out in December.  You don't have to pay the bill only with the account.  You just have to ensure that the amount you withdraw is the same as the amount of bills you paid.

[Vid]

Take 6500 back, out from my HSA ? a 6500 inside HSA is not same as a 6500 I spend out of my already taxed money. I hope you get what I am saying.

[Critter]

You have a bill now then you could pay it now ... then as the money is put into the HSA each pay period you take the same as a distribution to reimburse yourself for the amount you paid out earlier.  

You can take the distributions per pay period, per month or all at the end of the year depending on your situation.  Since medical bills usually don't incur interest you could just take a monthly distribution from the HSA and make the payment in installments.

[Vid]

I think nobody is understanding the reimbursement part clearly. If I spend $6000 out of my pocket it is equivalent to $9000 approx(because $6000 is an after tax dollar). So If I paid 6000 out of my pocket from my taxed money and simply reimburse $6000 from my HSA end of the year, I am at loss(of $3000).

Am I clear ? $xxx inside a HSA account is not as same as $xxx outside, in your pocket.

[Critter]

Ok ... still put the $6000 in the HSA  and use the $6K (plus earnings) to pay the medical bills.  

Putting $6K into the HSA  is not like putting $9K in ... you are just saving $3K in taxes so you have $3K more in your pocket  not $3K more in the HSA.

If you put $6K in the HSA you save  federal + state + FICA taxes on that amount.  So if you are in the 25% tax bracket + 3-10% state taxes + 7.65 FICA =  35.65 to 42.65% in taxes which will be reflected in your paycheck not in the HSA account.

[Critter]

Now the employer may also put some into the HSA which you can also tap into to pay medical bills.  If they also contribute that may be why they will not do so in advance in case you don't stay the entire year.

[Vid]

Can you please explain more about what you said here - "If you put $6K in the HSA you save  federal + state + FICA taxes on that amount. ". I am confused. If I am putting $6000 into my HSA, it is from my earnings. My earnings are already tax deducted. So I will lose money in tax if I deposit my post tax payroll dollars into HSA. I am sorry if this is not clear. The money in my pocket is after tax. Why would I put that into HSA and how do I get advantage.

[Vid]

"Now the employer may also put some into the HSA which you can also tap into to pay medical bills.  If they also contribute that may be why they will not do so in advance in case you don't stay the entire year."

Even if an employer contributes to my HSA, they do not contribute from their pocket, it is from my Payroll. Say if my employer deposits $1000 in Sep2016, say my monthly gross pay is $8000, since they paid $1000 to my HSA, my gross will be $7000 only. SO it is my money, not employer's money. Regardless of whether I stay entire year or not, they are contributing to my HSA from my money which is due from them for the work I did for them till THAT DATE.

I hope I am not confusing! :(

[Opus 17]

Assuming you don't have an employee match, then:

If you put $6000 in an HSA via payroll deduction, you will actually drop your take-home pay by $4,500.  You still pay social security and medicare tax on the HSA contribution, but not state or federal income tax.  You put in $6000 but it only "Feels" like $4500 because it goes in pre-tax.

Instead, let's say you deposit a $6000 lump sum and immediately withdraw $6,000 to pay your bills.  That costs you the whole $6,000 up front.  BUT (and this is the important part) you take a $6,000 deduction on your form 1040.  That saves you $1,500 in taxes.  So you get a bigger tax refund in March than you would have without the deduction.

In other words, if you make payroll contributions today, you see the tax savings today.  If you make a lump sum deposit, you see the tax savings later.  But it is exactly the same dollar amount of tax savings in the end.

And more than that, there is a way to move the tax savings forward anyway.  If you make a $6000 lump sum today, and withdraw it tomorrow to pay your bills, you can go to your employer and claim 2 extra allowances to your W-2.  That will result in you getting the tax deduction in your take home pay instead of waiting until March.

[Critter]

Opus is correct ... my answer was for a FSA  not HSA.

[Vid]

"If you make a $6000 lump sum today, and withdraw it tomorrow to pay your bills, you can go to your employer and claim 2 extra allowances to your W-2. ".

You mean at the end of the year when I file my taxes, for example in Turbo tax, I claim extra allowances and get back possibly the tax i lost by putting taxed money into my HSA on my own ? Just trying to be clear and get the answer I want 🙂

[Vid]

Or are you saying I should go to my employer and get a "Corrected" W2 since the money I have put on my own into my HSA goes unreported ?

[Opus 17]

Nope, I think you are confused.

Start by putting the lump sum of $6000+ into the account, then withdraw it to pay your medical bills.  If you change nothing else, you will get a $1500 -larger refund in March than you would have gotten, because the $6000 deposit is a tax deduction.  (It is not a tax deduction on form 1040 if you make payroll contributions, because it is already pre-tax and your W-2 will be lower instead.)  Got it so far?

So now, you have a $1500 refund "in the bank" with the IRS.  You can leave everything alone and collect it in March.  Or, you can adjust your W-4 (not your W-2). Your W-4 is the form you file with your employer that calculate how much tax should be withheld each week.  If you are married with two children you might claim 4 or 6 allowances, depending on if your spouse works and how old your children are.   Claiming a certain number of allowances is a way of predicting how much tax you will owe so that it can be taken out in bi-weekly installments.  If you raise the number of allowances by 3 from what it is now, that will result in you getting about $125 per paycheck extra in take-home pay.  Over 10 pay periods left in the year that's $1250.  That's not free money, it's reducing your tax refund.  You can do it in this case since you have a $1500 refund "in the bank" thanks to the lump sum HSA contribution.

So changing your W-4 would be a way of getting that refund spread out over the last 10 pay periods of the year instead of waiting until March of next year.

If you do this, remember to change your W-4 back to normal in January, otherwise you will not pay enough withholding in 2017 and will owe at the end of the year.

(Your W-2 is just a report at the end of the year of all your wages and tax withholding.)

[Vid]

I think I was super confused. So in simple terms - if i put money into my HSA from my pocket, I can get the tax refund when I file returns, that shouldn't be an issue.