HSA Employer vs. Employee Contributions: Key Differences
Understand the distinct tax implications and mechanics behind funding an HSA, whether contributions are made by you or directly by your employer.
A Health Savings Account (HSA) is a tax-advantaged savings account for individuals with a high-deductible health plan (HDHP). It allows you to set aside money for qualified medical expenses not covered by insurance, such as deductibles and copayments. Contributions can be made by both the account holder and their employer. The funds grow tax-deferred, and withdrawals for qualified medical expenses are tax-free, offering a triple-tax advantage.
HSA Contribution Limits
The Internal Revenue Service (IRS) sets annual limits on total HSA contributions. For 2025, an individual with self-only HDHP coverage can contribute up to $4,300, while those with family coverage can contribute up to $8,550. These figures represent the combined total from all sources, including the employee and employer.
This combined limit means that the sum of all contributions cannot exceed the annual maximum. For example, if an employer contributes $1,000 to an individual’s HSA, that person can only contribute an additional $3,300 to meet the $4,300 limit. Individuals age 55 or older can also make an additional “catch-up” contribution of $1,000 per year.
Employee Contribution Methods and Tax Treatment
Employees can fund their HSA in two ways: through pre-tax payroll deductions or with direct, post-tax contributions. Each method has different tax implications.
The most common method is making pre-tax contributions through an employer’s Section 125 cafeteria plan. These funds are deducted from your paycheck before taxes are calculated. This means they are not subject to federal income tax or FICA taxes for Social Security and Medicare.
Alternatively, you can make post-tax contributions by transferring money from a personal bank account. You can then claim an “above-the-line” deduction for these contributions on your annual tax return using Form 1040. This lowers your taxable income for the year, but it does not recover the FICA taxes already paid on those earnings.
Employer Contribution Tax Treatment
Employer contributions to an employee’s HSA are excluded from the employee’s gross income, meaning they are not subject to federal income or FICA taxes. These funds are deposited directly into the employee’s account and are non-forfeitable, so the employee retains ownership even if they leave the company. For the employer, these contributions are a tax-deductible business expense.
Tax Reporting for HSA Contributions
Your Form W-2 will show all contributions made through your employer’s payroll in Box 12 with the code “W.” This amount includes both your pre-tax payroll deductions and any contributions made by your employer.
The financial institution holding your HSA will send you Form 5498-SA. This informational form reports the total contributions deposited into your account for the year from all sources and is not filed with your tax return.
You must file Form 8889 with your Form 1040 tax return. On this form, you report all contributions, calculate your deduction for any post-tax deposits, and confirm that your total contributions do not exceed the annual limit.
Correcting Excess Contributions
An excess contribution occurs if the total deposits into your HSA exceed the annual IRS limit. If uncorrected, this excess is subject to a 6% excise tax each year it remains in the account, which is reported on Form 5329.
To avoid the penalty, you must withdraw the excess amount before the tax filing deadline for the year the contribution was made. The withdrawal must also include any earnings generated by the excess funds. The earnings portion of the withdrawal is reported as “Other Income” on your tax return, but the principal excess amount is not taxed.