HSA – After tax

Submitted by Chris Zuck on Thu, 2022-09-01 21:20

A prospect who is the head of HR stated that the HSA contributions that are being made are being made with after tax dollars. I have never heard of this option. Aside from why you would not want to do this, pre tax makes much more sense… is it even possible?



Submitted by William Tuttle on Fri, 2022-09-02 01:13

  • HSA contributions can simply be made the same as any other after-tax direct deposit and deducted on the tax return.
  • Pre-tax contributions must be done thru Section 125 Cafeteria Plan salary reductions. This reduces  Form W-2 Box 1 wages.
  • The two have the same effect for income tax purposes.
  • The difference is that pre-tax salary reductions are FICA tax exempt.
  • This means that Social Security and Medicare taxes are not paid on the HSA contributions.
  • This is a double-edged sword. While there are less taxes, there are less SS earnings credits for individuals < the SS MTE.
  • If an individual will be < the SS 2nd bend point when collecting SS benefits. It will probably be better to make after-tax HSA contributions. Otherwise, pre-tax HSA contributions are likely better.

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