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HSA Pre-tax Refund in Next Year

rlouisrlouis ✭✭
edited August 2010 in General Payroll Topics
Here’s a good one that I’ve not seen before:

Employee elects to have a pre-tax Health Savings Account (HSA) deduction in 2009. In total $600 is deducted from the employee in 2009 on a pre-tax basis. However, the employee does not open an HSA account until after April 15, 2010 – too late to accept 2009 contributions. The $600 withheld from the employee has been sitting in a reserve account at our carrier and needs to be refunded to the employee.

What would be the proper handling for the $600 refund? Could we refund in 2010 and add to taxable income?


  • Do not add it to 2010 wages - it is 2009 wages. You will have to file a Form 941-X for each affected quarter of 2009 and a W-2c. The FICA wages and taxes have to be reported in the year they would have been paid and the employee will have to file an amended 2009 tax return (unless still on extension) to correct income tax wages. Income tax withholding is already fixed, so that will not change.
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