Employer HSA Contributions on W2 (Taxes)

where is fica on w2

Hello All,

I just got my W2 for 2013. I noticed something interesting with the Box 1, 3, and 5. That is wages, SS wages, and medicare wages respectively. First some info.

You should know I maxed out my HSA this year with the help of my employer through payroll deductions ($6450 max). For simplicity let's say that I put in $5450 and my employer put in $1000.

Looking at box 12, the $6450 joint contribution between us is entered as "W 6450". I agree with that since it is a joint "cafeteria" contribution.

Where I am not sure on my W2 is that my Box 1, 3, and 5, wages, SS wages, and medicare wages respectively are each $1000 higher than I though they'd be when compared to my total taxable wages on my normal paystub. This $1000 is in essence the employer contribution to the HSA. In case you're wondering, I am accounting for the fact that 401k contributions and health premiums etc. reduce Box 1 vs Box 3/5 in different ways.

Is it correct that the employer contribution is taxed as income? Both federally and FICA?

I always saw it as a benefit, it never showed up as taxable wages on any pay stubs throughout the year.

IRS publication 969 states:

Employment taxes. Amounts you contribute to your employees' HSAs are generally not subject to employment taxes. You must report the contributions in box 12 of the Form W-2 you file for each employee. This includes the amounts the employee elected to contribute through a cafeteria plan. Enter code “W” in box 12.

I found IRS W2 instructions here:

Below is the HSA section. Here's where the confusion lies, it says,  "However, if it is not reasonable to

believe at the time of payment that the contribution will be

excludable from the employee's income, employer

contributions are subject to federal income tax

withholding, social security and Medicare taxes"   (or

railroad retirement taxes, if applicable), and

FUTA tax and

must be reported in boxes 1, 3, and 5 (use box 14 if

railroad retirement taxes apply), and on Form 940,

Employer's Annual Federal Unemployment (FUTA) Tax

Return.

What in the world does it mean,  "to 

believe at the time of payment that the contribution will be 

excludable from the employee's income" ? That they think I might not be around in a year? I'm lost.

For Reference here is the IRS W2 HSA section in full:

Health savings account (HSA).

An employer's

contribution (including an employee's contributions

through a cafeteria plan) to an employee's HSA is not

subject to federal income tax withholding or social

security, Medicare, or railroad retirement taxes (or FUTA

tax) if it is reasonable to believe at the time of the payment

that the contribution will be excludable from the

employee's income. However, if it is not reasonable to

believe at the time of payment that the contribution will be

excludable from the employee's income, employer

contributions are subject to federal income tax

withholding, social security and Medicare taxes (or

railroad retirement taxes, if applicable), and FUTA tax and

must be reported in boxes 1, 3, and 5 (use box 14 if

railroad retirement taxes apply), and on Form 940,

Employer's Annual Federal Unemployment (FUTA) Tax

Return.

You must report all employer contributions (including

an employee's contributions through a cafeteria plan) to

an HSA in box 12 of Form W-2 with code W. Employer

contributions to an HSA that are not excludable from the

income of the employee also must be reported in boxes 1,

3, and 5. (Use box 14 if railroad retirement taxes apply.)

An employee's contributions to an HSA (unless made

through a cafeteria plan) are includible in income as

wages and are subject to federal income tax withholding

2004-2, 2004-2 I.R.B. 269, is available at http://www.irs.gov/irb/

Source: ttlc.intuit.com

Category: Insurance

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