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Reporting. -- Employer HSA contribution to retirees who do not recieve a W2

Someone outside of my organization presented this question and am trying to help.

The company contributes to an Health Savings Account (HSA) for its retirees.
The retirees are not paid on their payroll system and do not receive a W2. A 3rd party processes the payments and produces a 1099 for the retiree payments.
The questions are:
1. How will this contribution reported to the retirees? The information should be included on the HSA administrators statement to employees.
2. Do they need to create a W2 which reports only the Employer contribution to the HSA in Box 12W?
The employer contribution is not taxable to these employees, as they are not located in any state which taxes employer HSA contributions.

As always your guidance and assistance is appreciated.

Comments

  • Sorry, I do not know this one. If you do not get an answer here, try BenefitLinks.com. That is where the benefit heavy hitters hang out.

  • You might check IRS Publication 969 --..."qualified HSA funding distributions are also shown on the form.
    You should receive Form 5498-SA, HSA, Archer MSA, or Medicare Advantage MSA Information, from the trustee showing the amount contributed to your HSA during the year. Your employer's contributions also will be shown in box 12 of Form W-2, Wage and Tax Statement, with code W. Follow the instructions for Form 8889. Report your HSA deduction on Form 1040 or Form 1040NR. "

    I am not finding any different instructions for retirees with no income. If I had to make a choice, I would say you would do a blank W-2 with only Box 12 filled in with the employer contributions since 1099Rs (pension distributions) aren't the approved place (and honestly I didn't even know employers could make HSA contributions to retirees, so this is new to me -- I love learning new things!) Unless you can somehow argue that the Form 5498-SA is enough, but I do know that DH and I get ours much much later than the deadline for the W-2s (sometimes months later!) so I am not sure it would be good to rely on that!

  • I am no HSA expert but issuing W2s to retired people to report benefits is quite common. I have done it with GTL for example. There is nothing in the IRC (tax code) which changes the rules for former employees. There is nothing that says retired = 1099. Pensions are a very specific exception with very specific law behind it,

  • I too have questions about HSA contributions for retirees. HSA's are not my area but it is my understanding you have to be an employee and enrolled in a high deductible plan. I will present that question to person who ask for assistance. My research also makes no distinction for retirees with without taxable earnings.
    With my employer we do report GTL for people on LTD, but the GTL is reported as income as well as in box 12C.

    Generally HSA contributions by employers is not considered taxable (there are a few state exceptions).
    Will continue my research and update if I find anything new.

    thank you all

  • If the retiree is covered by employer retiree health insurance and it is an HDHP, then I could see where an HSA would come into play (since the only real rqmt is that you be in an HDHP to fund an HSA) and have to be reported even if the retiree had no income (or only retirement 1099R income). I would err on the side of caution and do W-2s for this group with just that box filled in.

  • I know I researched this when Box 12 Code DD came into effect (employer cost of health care). We decided that if there was no other reason to issue a W2 - i.e. no taxable income of any sort - we would not issue a form with only this box populated. I was pretty confident at the time that this would be OK but don't have the source at my fingertips. It may have come from the outside counsel that was advising with the ACA rules. As rrupert said, err on the side of caution if you can. Sometimes your payroll system makes it just as easy - or completely impossible. :-)

  • IRS Instructions below. But oddly, Group Term Life wouldn't fit this rule and we issued W-2's for those. Employer wouldn't have withheld tax if there hadn't been any actual payments (only the imputed benefit).

    https://www.irs.gov/pub/irs-pdf/iw2w3.pdf

    Who must file Form W-2.
    [...] Complete and file Form W-2 for each employee for whom any of the following applies (even if the employee is related to you). You withheld any income, social security, or Medicare tax from wages regardless of the amount of wages; or You would have had to withhold income tax if the employee had claimed no more than one withholding allowance or had not claimed exemption from withholding on Form W-4; or You paid $600 or more in wages even if you did not withhold any income, social security, or Medicare tax.

  • Long post, but lots of interesting thoughts - in sum, just do the W-2s - lots of reasons to do them

    Make sure these are, in fact, pre-tax contributions. They could be for early retired employees (under age 65 - once on Medicare, they are no longer eligible for HSA contributions). That could be a reason for reporting it since, if the employee becomes ineligible for the HSA contributions. Medicare coverage is one reason, another is coverage under another plan (e.g. spouse plan) that pays benefits before the deductible is paid by the employee. If the employer does not know and makes contributions, the excess contributions are taxable income to the employee. I think it is in the employer's interest to make sure the employee does not forget the employer contributions and make it as easy for the employee to report them on Form 8889.

    Make sure the contributions are, in fact, pre-tax rather than after tax deductions from the pension payments. Pre-tax employer contributions reduce the amount of other contributions that the retiree can deduct as a contribution on Form 1040 and determine whether there were excess contributions. Form 5498-SA shows total contributions to the HSA, It does not show a breakdown by source. If the employer contributions are the only contributions, then that might be OK, but I have clients who are "retired" but still contribute to their HSA's with after tax dollars to take advantage of the tax deduction and the exclusion of distributions from income. The instructions for Form 8889 say to get the line 9 (employer contributions) amount from Form W-2. This is the basis for determining if there were excess contributions that need to be included in taxable income as "other income".

    As to the filing requirements for Form W-2 as stated in the instructions for Form W-2. The $600 amount can be ignored because that applies only to employees who are not subject to FICA taxes such as certain governmental employees such as election workers making less than $1,800 per year and temporary emergency workers, certain family members, certain student or patient employees, etc. See chart in Pub 15. It is there because in 1954, the filing threshold for information returns for certain types of payments was set at $600, however, filing is also required if there is any FICA withholding. Based on the fact that the employer is liable for tax that should have been withheld but was not, I take that to mean the employer cannot get out of responsibility for failure to file a W-2 based on failing to withhold taxes that should have been withheld.

    For the GTL, the employer would have withheld FICA taxes on the excess GTL premiums had there been cash available to withhold. Instead the employer reports the amount that should have been withheld on the W-2 in box 12 so that the employee includes it and pays it on Form 1040. Note that it is reported as an employer liability on line 5 of Form 941 and then adjusted for the amount that was not withheld on line 9. The employer paid the employer share of FICA. That is, the employer withheld what the employer was able to withhold (just happened to be zero).

    Similarly, if the employer is aware that it made excess contributions, the W-2 is to report the excess in boxes 1,3, and 5 of the W-2 and exclude the excess from the box 12 code W amount. If there were excess contributions and the employer was not aware of that fact, then the employer reports the amount of its contributions in box 12 with code W and the employee has the opportunity to adjust the contributions.

    If the employee withdraws the excess contributions and any earnings on the excess contributions before the due date of the employee's tax return, then the excess amount and earnings are treated as not being contributed and the employee reports the amount withdrawn as "other income" on the employee's tax return. Otherwise, the employee is going to have to pay additional (penalty or excise) tax on the excess contribution.

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