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Are Payroll Deductions the Same as Employer HSA Contributions?

A health savings account, or HSA, helps employers save on the high cost of insurance and employees save by lowering their monthly premiums. By combining an HSA with a high-deductible health plan, workers can lower their insurance costs and fund the higher deductible with pre-tax dollars. At the same time, the employer might offer to fund part of that same HSA, easing the burden on the employee and lowering those costs even more.

  1. High-Deductible Health Plan

    • To open or add to an HSA, you must have a health care plan that is HSA-eligible. That means you must have a high-deductible health plan, known to insurance agents and human resources representatives as an HDHP. These plans have higher deductibles, and lower monthly premiums, than other plans, and the money invested in the HSA is intended in part to fund those higher up-front costs. You can check with your employer to make sure your plan qualifies for an HSA.

    Employer Funding

    • Many employers who offer high-deductible health plans offer to fund part of the deductible by contributing to an HSA on the employee's behalf. This option can allow both the employer and the employer to save money. The employer saves money because the HDHP generally costs less, even when the employer-funded portion of the HSA is taken into account. The employee can save money as well, since the monthly premiums can be much lower. The employer typically funds the HSA through a lump sum payment at the beginning of the year, while the employee contributes through pre-tax payroll deductions.

    Pre-Tax Contributions

    • As an employee, you might have the option to contribute to your own HSA through payroll deductions. Those payroll deductions can come out on a pre-tax basis, which lowers your overall tax liability and your tax bill as well. Employees who have this option can typically determine how much to contribute to their HSA fund each pay period, until they reach the contribution limit set by the Internal Revenue Service.

    Contribution Limits

    • The IRS imposes limits on the amounts employers and employees can contribute to HSAs, revisiting those limits annually and making adjustments as needed. For 2011 the combined contribution limit for a single HSA is $3,050, while the contribution limit for a family HSA is $6,150. These limits apply to both employer and employee contributions, so if your employer funds the first $2,000 of your HSA, the most you could contribute would be $1,050 or $4,150.

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