You still must pay Social Security taxes on HSA contributions, with the exception of Section 125 “cafeteria” plans, which allow employees to pay insurance premiums pretax and can also be modified to allow HSA contributions.
Do you pay Social Security and Medicare tax on HSA contributions?
Your contributions to an employee’s health savings account (HSA) or Archer medical savings account (MSA) aren’t subject to social security, Medicare, or FUTA taxes, or federal income tax withholding if it is reasonable to believe at the time of payment of the contributions they’ll be excludable from the income of the …
Does HSA affect Social Security?
HSAs offer many advantages, but they don’t mix with certain types of federal programs and benefits. For example, if you are enrolled in Medicare Parts A or B, or if you file for Social Security benefits after age 65, you can’t make contributions to an HSA.
Is HSA exempt from FICA tax?
HSAs Offer a Triple Tax Advantage for Your Employees
If they contribute pretax, their contributions aren’t included in their gross income and aren’t subject to income and FICA taxes. … Their HSA funds can be used tax-free for any qualified medical expenses.
Do you have to pay taxes on HSA?
Earnings to an HSA from interest and investments are tax-free. Distributions from an HSA to pay for qualified medical expenses are tax-free.
Do I have to report HSA contributions on my tax return?
Report health savings account (HSA) contributions (including those made on your behalf and employer contributions). Figure your HSA deduction. Report distributions from HSAs. Figure amounts you must include in income and additional tax you may owe if you fail to be an eligible individual.
What is the tax penalty for contributing to an HSA while on Medicare?
Your contributions after you’re enrolled in Medicare might be considered “excess” by the IRS. Excess contributions will be taxed an additional 6 percent when you withdraw them. You’ll pay back taxes plus an additional 10 percent tax if you enroll in Medicare during your HSA testing period.
When should I stop contributing to my HSA?
Under IRS rules, that leaves you liable to pay six months’ of tax penalties on your HSA. To avoid the penalties, you should stop contributing (if possible) to your account six months before you apply for Social Security retirement benefits.
How does HSA work with Medicare?
If you enroll in Medicare Part A and/or B, you can no longer contribute pre-tax dollars to your HSA. This is because to contribute pre-tax dollars to an HSA you cannot have any health insurance other than an HDHP. … If you use the account for qualified medical expenses, its funds will continue to be tax-free.
Can I withdraw money from my HSA after age 65?
At age 65, you can withdraw your HSA funds for non-qualified expenses at any time although they are subject to regular income tax. You can avoid paying taxes by continuing to use the funds for qualified medical expenses.
How can I avoid paying FICA taxes?
The only way to pay less FICA tax (as a dollar amount, not a percentage of pay) is to earn less income. FICA stands for Federal Insurance Contributions Act. FICA consists of two separate payroll taxes: Social Security (6.2% of pay) and Medicare (1.45% of pay), for a total of 7.65% of pay.
What is exempt from FICA?
International students, scholars, professors, teachers, trainees, researchers, physicians, au pairs, summer camp workers, and other aliens temporarily present in the United States in F-1,J-1,M-1, or Q-1/Q-2 nonimmigrant status are exempt from FICA taxes on wages as long as such services are allowed by USCIS.
How does HSA affect my paycheck?
Contributions made to your HSA by your employer may be excluded from your gross income. The contributions remain in your account until you use them. The earnings in the account aren’t taxed. Distributions used to pay for qualified medical expenses are tax-free.
What is the downside of an HSA?
Some other disadvantages of HSAs include recordkeeping requirements, taxes and penalties, and fees. Whenever you withdraw money from your HSA, depending on the plan, you may have to keep receipts to prove that you spent the money on a qualified medical expense.
How much does an HSA save you in taxes?
Annual HSA contributions: $4,000. Annual expenses to be paid with HSA savings: $2,000. Federal income tax rate or bracket: 25% State income tax rate: 0%
What happens to money in HSA if not used?
No. HSA money is yours to keep. Unlike a flexible spending account (FSA), unused money in your HSA isn’t forfeited at the end of the year; it continues to grow, tax-deferred. … Your HSA belongs to you, not your employer, just like your personal checking account.