Can Employees Fund an HSA Account Pre-tax?

A health savings account (HSA) allows you to put money aside on a pre-tax basis. Many employers now offer the combination of a high deductible health plan and a health savings account to their employees since this option can save both parties a lot of money. If you fund your HSA through payroll deductions, you can invest with pre-tax money. Otherwise, you can invest with post-tax dollars and take a tax deduction for your contributions.

Payroll Deductions

• If you get your health insurance and your health savings account through your employer, you might have the option of contributing to the plan through payroll deductions. This option can make it much easier to fund your HSA since the money just comes out of your paycheck. The money you contribute to an HSA, through payroll deductions, goes in on a pre-tax basis, which lowers your taxable income and reduces your tax liability.

Employer Contributions

• Combining a high deductible health plan with a health savings account provides cost savings for both employers and employees. As a result, many employers offer to fund part, or even all, of their employees' health savings accounts. Check with your human resources department for information about any contributions that your employer makes to your health savings account. It is helpful to know how much of your HSA the employer is funding since this will help you determine how much of your paycheck you should contribute toward the plan.

Direct Contributions

• If your employer does not provide the option of funding your HSA through payroll deductions, you can contribute money directly to the plan and take a tax deduction when you complete your 1040 form. It is important to keep careful records of all the contributions you make so you can get full credit for the amount you put in. Keep a receipt for each payment with your tax records and use those records when you prepare your tax return.

Contribution Limits

• Whether you make your HSA contributions through payroll deductions, get money from your employer or make your contributions directly, it is important not to exceed the contribution limits established by the IRS. The agency reviews the contribution limits set for health savings accounts on an annual basis so always check with your accountant or tax preparer before making your contributions. For 2011 you can contribute up to $3,050 to a single HSA and $6,150 to a family plan. The combination of your contributions and those of your employer cannot exceed those limits.