CA CPA advice needed HSA CA – 2% more SH how to report on DE9 and DE9c

Submitted by andre alles on Wed, 2019-08-28 05:09

Please help me straigten out the HSa confusion :

Ca CPA / or business owner that is familiar with HSA contributions for S-corp owner more than 2% in CA and how it is handled on DE9 and DE9c .

I am arguing with my payroll provider over how it is reported on De9 and DE9c

I was under the impression that HSA is handled the same way as Hi for a more than 2% owner .

Meaning :

It is not included in Subject wages on form DE9 line C and also not on line F for the SDI rate .

It is also not included on DE 9C Line F as Total subject wages BUT only included for PIT wages line G .

Meaning NOT subject to UI/ ETT , NOT subject to SDI but SUBJeCT to PIT .

I have read the below information sheets but I am still confused since the payroll provider is stating it needs to be taxed on De9 line c and under SDI taxable wages .

They are looking at this publication while I am looking at the second for guidance .

https://www.edd.ca.gov/pdf_pub_ctr/de231tp.pdf

page 7

https://www.edd.ca.gov/pdf_pub_ctr/de231eb.pdf

page 3- 4

I am looking at this :

https://www.irs.gov/pub/irs-drop/n-05-08.pdf

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Permalink Submitted by David Mertz on Wed, 2019-08-28 13:37

Not a CPA or a California business owner or even a California resident, but I have some familiarity with the effect on California income tax returns caused by HSA contributions. I agree with the payroll company. Sections 17131.4 and 17131.5 of the California Revenue and Taxation Code result in California not recognizing HSA accounts as anything other than ordinary investment accounts. To me this means that any money put into the HSA by the S corp on behalf of a 2% shareholder subject to California income taxes is treated by California no differently than any ordinary wages paid to any employee and would be subject to CA PIT withholding, SDI, UI and ETT. This agrees with what is stated in the California guidance being referenced by the payroll company.
IRS Notice 2005-8 does not provide any information that pertains to California tax treatment.
Treatment on federal Form 941 will be different than on California Forms DE 9 and DE 9C since the federal tax code recognizes HSAs. If the HSA contributions are made as part of a Section 125 plan, the contributions are not included in Social Security and Medicare wages, so no Social Security or Medicare taxes are withheld on these HSA contributions.

Permalink Submitted by andre alles on Wed, 2019-08-28 15:23

I am referring to the following instructions on the set up for an owner / shareholder .

If you are a regular or fully taxable S-Corp participant and would like to have a company contribution to HSA, the amount is taxable to FIT/SIT only, regardless of whether it is offered to other employees. The Company HSA Contribution amount needs to be included with the S-Corp item amount and will get reported on the W-2 in Box 14 as S-Corp, and does NOT report to Box 12 Code W. For more information, go to https://www.irs.gov/pub/irs-drop/n-05-08.pdf

Permalink Submitted by David Mertz on Wed, 2019-08-28 16:12

The only place I can find that particular text is in some notes in QuickBooks Help for HSA contributions. That help has a separate note referring to DE 231EB for California employers.
The note you quoted appears to be trying to reinforce an earlier statement in that help regarding federal employment taxes, that the HSA contribution is not subject to Social Security and Medicare taxes and describes the reporting on the W-2 as it pertains to effect that, not to anything about how California treats HSA contributions. That’s evidenced by the reference to IRS Notice 2005-8 which pertains only to federal tax treatment.
QuickBooks Help cannot be considered to be authoritative. California DE 231EB is the authoritative reference on California Taxability of Employee Benefits and the QuickBooks Help points you to that. IRS Notice 2005-8 is the authoritative reference for federal tax treatment with regard to S corps.

Permalink Submitted by andre alles on Thu, 2019-08-29 00:29

Thank you

Permalink Submitted by Jeffrey Evans on Fri, 2019-08-30 11:37

client over age 71 just retired with all qualified assets in 401k. Can the RMD be taken from the 401k and the account remain with the 401k or does it need to be rolled into an IRA?