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?)

[Opus 17]

Yes, if you make a lump sum contribution with after-tax dollars, you get a tax deduction later.  It's the same dollar amount of tax savings as if you made contributions through your employer, it just comes to you in a different form.   Just make sure that your total contribution by both methods are not more than the annual maximum for your age and type of insurance.

[Vid]

Ok. Thanks. My payroll pre-tax contribution is also happening and I am planning to deposit the after-tax dollars to pay bills quicker. Where do I mention the after-tax dollars while filing my returns ?

[Opus 17]

Your payroll contributions will be recorded in box 12 of your W-2 with a code W and Turbotax will automatically pick them up.  In Turbotax, your medical expenses are reported on the Deductions and Credits page in a section for HSA/MSA contributions.  You will first be asked if you had withdrawals from an HSA, which will be reported to you on a form 1099-SA sent by the plan administrator.  After entering the withdrawals, there is a box to check for "Yes, I used all the withdrawals for medical expenses."  (Don't skip this or the money will be taxed.)  Keep going and it will next ask if you made any out of pocket contributions.  All this information will go onto a form 8889 as part of your final tax return.

[Critter]

WAIT .... if you have the payroll deduction then you don't have to also put after tax money in the HSA ... just pay the bills now if you want then take the deductions from the HSA as the money is put in to the account to reimburse yourself like I said originally.  No one is stopping you from paying the medical bills now if you want to and the distributions when the money is in the account paid to yourself directly ... they do not have to be paid  to the doctors.  As long as the HSA deductions you take are at least as much as your annual medical bills you pay all is good.

I think putting money in yourself AND having payroll deductions is inherently dangerous as you are sure to put in too much which means you will incur a penalty for excess contributions and you have to have the excess contributions ( with earnings) withdrawn timely on with you would owe taxes as well.

[Critter]

And if you have made an election for X amount to be put into the HSA thru the payroll system you cannot change that amount ... don't put in too much ... leave the payroll system work.

[Opus 17]

@Critter#2 those things are true but are more complicated to visualize and depend on the employer.

My employer will allow me to set an annual contribution amount and change it at any time.  They look at what was already contributed, and divide the leftover by the number of pay periods.  This employer may not do that.  If he elected $100 per pay period for example, he may be stuck with that.  That would mean he can contribute a lump sum of $4350 without getting into trouble.

Also, it depends on how much money he actually has on hand.  Let's assume the taxpayer has $6000 in the bank to pay medical bills.  Yes, he can pay out the $6000 to the doctors now, increase his payroll deductions to max out by the end of the year, and withdraw the $6000 on December 30 to pay himself back.  But, the combination of paying $6000 out of pocket plus losing $500 per month in take home might be more than they can handle.  Whereas contributing the lump sum on Monday and withdrawing it to pay the bills on Wednesday does not change his take home pay.  While increasing the payroll deduction and paying the bills late may incur interest and late fees.

Making a direct lump sum deposit if the cash is on hand, and taking it out the next day, is legal, easy to comprehend, and not dangerous at all as long as the taxpayer does not go over their overall annual limit.

[Critter]

I agree and this person has been confused ... but if the employer won't let him change to put in more now he might not be able to change it later ... best to talk to the employer to best understand what is possible with the HSA.

[Vid]

Employer will let me change but within his set limit. say per month I want to put 1000 dollars and stop election after 6 months. They wont allow, they would allow only 670dollars per month to be deposited. They want the deposit to be equally distributed per pay cycle.

[TaxGuyBill]

I agree with Critter, just pay the medical bills now out of your pocket, then in December withdraw that amount from the HSA.

Contributing to an HSA through the employer is usually better than directly contributing to it.  Contributing through the employer usually saves Social Security and Medicare taxes, while contributing directly does not.

[Critter]

I thought I was right in the beginning ...  which is a plus for employers since they pay less taxes as well.

"Yes. Employers may make pre-tax contributions to their employee's HSAs if they have a cafeteria plan in place that provides for HSA contributions. These contributions are not subject to witholding from wages for income tax or subject to FICA, FUTA or the Railroad Retirement Act."
<a rel="nofollow" target="_blank" href="https://www.hsaresources.com/rc/employer/faq/">https://www.hsaresources.com/rc/employer/faq/</a>

[Opus 17]

Only some HSA contributions are exempt from FICA and Medicare it depends on how the plan is set up.

[TaxGuyBill]

MOST are exempt from FICA.  All §125 Cafeteria plans are exempt.  So if it shows up as Code W on the W-2, it is exempt from FICA.

A FEW employers just have it set up as just treating the HSA as depositing money into another bank account, rather than actually having an employer 'plan'.  This would not show up as Code W on the W-2.

[Critter]

Too confusing sometimes.

[Vid]

//Contributing through the employer usually saves Social Security and Medicare taxes, while contributing directly does not.//
That's exactly what I was saying too, I lose in taxes if I contribute to it from my after-tax money. So I prefer my employer do it for me. But the problem there is, my employer will do only on his terms, say I have a medical bill to pay now, $1000 and my HSA balance is only $123, I need push $877 in the next pay cycle in order to reach $1000 and pay my medical bill from that tax free money!!

My employer wouldn't deduct and deposit $877 in the next payroll, he will only deposit $300 because they have that monthly limit(their own number to allow uniform distrubution of HSA deposit through the year). I don't understand why I should distribute, I don't see why there should be such limitation when I am in need to move money and pay. This is not an IRS guideline, employer's own guideline and I have problem with that - back to the original question.

[Vid]

So my original question was - can an employer impose a restriction that is not defined by IRS. In my case I have a monthly contribution limit, IRS advises only the annual limit, for a family it is $6750 this year. This is rather an IRS question than a legal question that you may think it is, in fact.