How Are Contributions to an HSA Deducted?

As an Employee

Contributions made to your HSA (health savings account) plan will be treated as an adjustment from your gross income, says the IRS. This means that the contribution amount will be deducted from the total amount that you earn during the year to arrive at your adjusted gross income, according to "J.K. Lasser's Your Income Tax 2009" and the IRS. You will report your total contribution amount on Line 25 of the IRS Form 1040 or 1040NR. Line 25 is titled "Health Savings Account Deduction." You need to attach Form 8889 (Health Savings Accounts) to your Form 1040 to verify your contribution amount. Your total contribution amount needs to include all contributions made during the year and those designated for the year. Those amounts being designated for the year need to be contributed no later than April 15th of the following year. This is the filing requirement date for your federal income tax return.

Excess Contributions

If your employer made any excess contributions into your HSA, they are not deductible. They are treated as gross income by the IRS. If you are an employee and made any excess contributions, the contributions may face an additional tax assessment.

As an Employer

If you are an employer, the IRS states that you can take a tax deduction for contributions you make into your employees' HSA plans. According to IRS Publication 969 (Health Savings Accounts and Other Tax-Favored Health Plans), in order for you to take any deduction for your contributions, your employees must participate in what is known as an HDHP (high deductible health plan). Your deduction will classified as part of an employee benefit program, a valid business expense. There is a line for "employee business programs" on your business income tax return. You must report your contribution amount in the year in which it was made, states the IRS. Even if your contribution was allocated to a prior year, you still need to deduct it in the year it was made. As an employer, you need to use the IRS Form 1040, Schedule C (Business Income and Loss). Part II, Line 14 of Schedule C will be where you enter your contribution amount for the year. At year's end, you need to report any contributions you made throughout the year in each employee's IRS Form W-2, box 12. The amount will include any contribution amounts that the employee made through a cafeteria plan. A copy of the W-2 is submitted to the IRS, with another copy being distributed to the employee. The IRS states that any amount you contribute to your employees' HSA plans is, generally, not subject to employment taxes.

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