Are HSA Contributions included in Retirement Plan Compensation?
Many have asked when submitting their year-end census information, should Health Savings Account (HSA) contributions be included as plan compensation? The answer generally is yes, but it depends on whether or not the HSA contributions were made on a pre-tax or after-tax basis. Pre-tax HSA contributions that are withheld through a company’s cafeteria (or Section 125) plan are included in plan compensation. This means you would need to add those amounts to the compensation reported in box 1 of the W-2 when reporting gross compensation, unless your plan document specifically excludes them. HSA contributions made with after-tax contributions would already have been included in W-2 box 1 compensation.
Typically, when a participant elects to defer money into an HSA, they will choose a percentage or dollar amount to be withheld prior to the pay being received. Most companies will withhold these dollars on a pre-tax basis. In short, it is a way to reflect on the W-2 that wages were earned on this contribution but taxes are not required to be withheld on the wages prior to contributing to the HSA. Generally, in order to do this in a pre-tax fashion, the contribution will be funneled through the company’s cafeteria (or Section 125) plan.
Due to the pre-tax nature of HSA contributions, the amount of contributions may not be reflected on box 1 of the Form W-2. Instead, it may only be reflected in box 12. When determining the amount of compensation that is eligible is for retirement plan purposes, this amount in box 12 would need to be added to the amount shown in box 1.
If the HSA contributions are not included in a pre-tax manner, it is generally not necessary to add them into compensation, as these amounts would already be reflected in compensation for Form W-2 purposes. This situation typically occurs when companies do not offer a specific HSA provider and a participant has a personal HSA account into which payroll is being deposited.
Compensation and company benefit structures can be complex. For in-depth questions on how your company’s compensation is calculated, speak with your tax advisor.
Lisa Melberg, Retirement Plan Compliance Consultant
Matthew Slyter, Vice President, Operations