HSA Tax Concern

[teejayevans]

That's not the way the HSA payroll deduction works in my past experience with DW's employer. I agree w/ the 401k - SS is always taken out. I believe the HSA is taken out through a cafeteria plan, just like the dental and health insurance, and SS is never taken out. 401k is treated differently. I could see how some employers might have the HSA not funneled through the cafeteria plan, and in that case the deductions could be treated as post tax.

IF they are payroll deductions, SS gets it's cut. If the corp pays then
SS is not taken out. It depends, most megacorps probably do a combo,
they deposit some, you deposit some.
TJ

 

[justin]

IF they are payroll deductions, SS gets it's cut. If the corp pays then
SS is not taken out. It depends, most megacorps probably do a combo,
they deposit some, you deposit some.

At the particular megacorp DW works at, payroll deducted HSA contributions are not subject to SS tax. They are furthermore not subject to fed/state tax. Federal tax law also allows HSA contributions to fall under the 125 cafeteria plans. As you say, the corporation IS technically paying DW's elective HSA contributions instead of paying her salary. That's the beauty of the 125 cafe plans - you elect not to receive a certain amount of pay in exchange for some pre-tax elective bennies. So maybe we are agreeing on this point?? I know that when I go to the bank and make a regular HSA contribution, I don't get an SS tax break, but rather I get a deduction on my state and fed income tax forms.

 

[ziggy29]

At the particular megacorp DW works at, payroll deducted HSA contributions are not subject to SS tax. They are furthermore not subject to fed/state tax. Federal tax law also allows HSA contributions to fall under the 125 cafeteria plans. As you say, the corporation IS technically paying DW's elective HSA contributions instead of paying her salary. That's the beauty of the 125 cafe plans - you elect not to receive a certain amount of pay in exchange for some pre-tax elective bennies. So maybe we are agreeing on this point?? I know that when I go to the bank and make a regular HSA contribution, I don't get an SS tax break, but rather I get a deduction on my state and fed income tax forms.

I need to look into this more. If that's the case it's a strong incentive to max out HSA contributions, even if it means cutting back some on the non-matched 401K contributions which are subject to SS and Medicare taxes.

 

[justin]

I need to look into this more. If that's the case it's a strong incentive to max out HSA contributions, even if it means cutting back some on the non-matched 401K contributions which are subject to SS and Medicare taxes.

Yep - the tax savings are pretty impressive. Here is a quick link to the US Treasury's web site discussing HSA's.

 

[TromboneAl]

The thing is that my tax rate is so damn low these days. I'll make up a spreadsheet to really nail down the risks/rewards and let you know.