How does TurboTax deal with "self" funding of an HSA ?

[trapezewdc]

If funding with "personal" money, the money is already taxed(after-tax) and therefore people will not get the same tax benefits from pre-tax contributions(For example : From an employer through payroll deductions).

Thoughts ?

[NCperson]

if you make a direct contribution to an HSA (called an 'employee' contribution), you will enter an adjustment to income using the 1099 SA form you receive to document the contribution. - because, you are correct, you are contribution are after tax money. 

it is better to have the money withdrawn from your paycheck (a "employer' contribution) because it is deducted from your paycheck PRIOR TO social security and Medicare taxes.)

so you never pay SS and Medicare taxes on contributions via the paycheck, but of course, you have already done so if you make a direct / employee contribution 

[Opus 17]

If you participate in an employer sponsored HSA via salary reduction agreement, your employer puts money in the account for you on a pre-tax basis.  You save federal and state income tax, and also 7.65% social security and medicare tax.   If you deposit money directly in an HSA from your after-tax dollars, you claim a tax deduction when you file your return, which reduces your state and federal income tax by the same amount as if the money had been deducted from your paychecks pre-tax.  You don't get the additional savings in social security and medicare tax.  So employer participation is better, if you have that option, but a self HSA is still a really good deal. 

[trapezewdc]

Thanks

[dmertz]

"if you make a direct contribution to an HSA (called an 'employee' contribution), you will enter an adjustment to income using the 1099 SA form you receive to document the contribution. - because, you are correct, you are contribution are after tax money."

@NCperson , I'm not sure where this came from because is not correct.  There is no employment requirement for making an HSA contribution, so it makes no sense to call personal contributions "employee contributions."  What TurboTax refers to as personal contributions are simply contribution deposits made directly by the individual, not through an employer.

Also, there is no adjustment to the information reported on Form 1099-SA for having made a direct contribution.  As Opus 17 said, the individual receives a deduction for eligible direct personal contributions, changing the funds into pre-tax funds, resulting in all funds properly in the HSA being pre-tax funds.  Unlike a traditional IRA, there is no such thing as after-tax funds in an HSA.  All regular HSA distributions are treated the same on Forms 1099-SA and on the tax return, with only the amount not applied to qualified medical expenses being subject to taxation.

[Opus 17]

For the sake of completeness:

1. Anyone with a qualifying HDHP and no other coverage can contribute to an HSA, even if not offered by an employer.  Many banks and brokers offer HSAs, although you are likely to see a monthly maintenance fee of around $3-$5 with a private HSA that you may not see with an employer sponsored account.

2. If you contribute via payroll deduction, the tax laws consider that an "employer" contribution.  The legal view is that you agree to a voluntary salary reduction, and the employer contributes that money to the HSA for you.  So all workplace contributions, including both voluntary contributions and employer match, are "employer contributions."

3. You can always contribute after-tax dollars to an HSA, even if it is also an employer sponsored plan, so long as you don't go over your annual limit.  For example, suppose you are covered by a single HDHP and are under the age of 55.  Your annual contribution limit is $4150.  In January you elect a contribution of $50 per week, or $2600 for the year.  You decide you have more expenses and want to contribute more, but your employer won't allow you to change your payroll deduction.  You are still allowed to contribute up to $1550 from your after-tax out-of-pocket funds, and take a tax deduction.  The only thing you lose is the extra savings from social security and medicare tax.