HSA for single-person S-corp

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
Topic Author
meeotch
Posts: 8
Joined: Sun Sep 15, 2013 12:59 am

HSA for single-person S-corp

Post by meeotch » Thu Feb 13, 2020 2:24 pm

I've just recently discovered the various threads indicating that HSA contributions can be treated analogously to health insurance premiums, for self-employed s-corp owners. (I.e., the s-corp pays, you include payments in Fed wages but not in FICA wages on W2, then take the personal deduction on 1040.) My question is: should the HSA plan be a "company-provided account" (set up by the corp, and then enrolled in by the employee), or an "individual account" (set up by the employee, unrelated to any specific employer)?

I know that the IRS has specifically given guidance w.r.t. insurance premiums that either an employer-provided policy or an individual policy is acceptable, but I'm unaware of similar guidance for HSAs. An individual account is my preference, since Fidelity offers them fee-free, whereas they charge for employer plans - and presumably the latter require more paperwork.

Again - single-person s-corp, no employees, no spouses or other complicating factors. (Also, I know - "ask your CPA"... I just like to form my own opinion and go to him with supporting evidence. I do a pretty good job of convincing him about half the time.)

(For those who don't agree that both products exist, here's what I'm talking about: https://www.fidelity.com/go/hsa/hsa-provider The one on the left costs nothing, the one on the right has administrative fees.)
Last edited by meeotch on Fri Feb 14, 2020 1:24 pm, edited 3 times in total.

UnclePennybags
Posts: 61
Joined: Fri May 09, 2014 10:50 am

Re: HSA for single-person S-corp

Post by UnclePennybags » Thu Feb 13, 2020 2:59 pm

It is my understanding that HSA contributions made on behalf of a 2% or greater shareholder are treated the same as health insurance premiums -- they are reported on the W-2 as income, not subject to FICA. That is how my wife's HSA contributions are treated by our CPA. The HSA account is in her name personally. It also deducts from income "above the line." We've done it this way for the past two years, vetted by our CPA and have had no issues. We use Fidelity for the free HSA account.

It gets complicated when you have employees making pre-tax contributions, which as far as I understand cannot be done by an owner.

Spirit Rider
Posts: 12449
Joined: Fri Mar 02, 2007 2:39 pm

Re: HSA for single-person S-corp

Post by Spirit Rider » Thu Feb 13, 2020 6:27 pm

An HSA account like all tax-advantaged accounts is an individual account. It can only be owned by the 2% shareholder-employee. However, just like health insurance premiums, the S-Corp can directly make or reimburse HSA contributions.

jacoavlu
Posts: 845
Joined: Sun Jan 06, 2013 12:06 pm

Re: HSA for single-person S-corp

Post by jacoavlu » Fri Feb 14, 2020 12:00 am

open your individual HSA at Fidelity. It is very simple. Once open you can find the HSA account number and routing number, just like your checking account for direct deposit for your paycheck. Provide these numbers to payroll provider and have the HSA contribution from the S Corp run through payroll.

Topic Author
meeotch
Posts: 8
Joined: Sun Sep 15, 2013 12:59 am

Re: HSA for single-person S-corp

Post by meeotch » Fri Feb 14, 2020 12:56 pm

Thanks for the replies. Though I feel like most of the info in this thread is tangential to my original question, the first respondent seems to have provided at least one data point: "The HSA account is in her name personally."

The notion that "all tax-advantaged accounts are individual accounts" seems to miss my point, though. The holdings of all such accounts are obviously owned by the individual. But that doesn't mean there's no difference between an account that you set up individually (e.g. an IRA), and an account set up through an employer-run plan (e.g. a 401k). In the case of HSAs, both options are available, as mentioned in the original post. My question, in a nutshell, was whether that mechanical difference corresponded to a statutory difference.

I'm going to do the thing I wanted to do, which was open the account as an individual, then make the contributions directly from the S-corp. I believe the statute says something to the effect of "contributions made to an employee's HSA", and that sounds like the closest match.

For other folks stumbling on this thread, some additional info. A good discussion, along with quotes from statutes/guidance is here:
viewtopic.php?t=125518

Also, and I don't have the link on me, but in one of the threads on the topic, it was mentioned that the S-corp should make the HSA contributions itself. The reason given was that for insurance premiums, the IRS has specifically allowed reimbursement as well as direct payment as a "guaranteed benefit", but no similar guidance has been given for HSAs.

theplayer11
Posts: 1009
Joined: Tue Jul 22, 2014 8:55 pm

Re: HSA for single-person S-corp

Post by theplayer11 » Fri Feb 14, 2020 1:07 pm

Not sure how you can have a HSA in your company name. As stated by others, run it through payroll. It will be in your name.

Topic Author
meeotch
Posts: 8
Joined: Sun Sep 15, 2013 12:59 am

Re: HSA for single-person S-corp

Post by meeotch » Fri Feb 14, 2020 1:21 pm

I've updated the original post to hopefully clarify what I'm talking about. There are indeed two ways of going about this. Anyway, I've made my decision - so thanks for the replies.

@theplayer11 - the contribution will show up on payroll (similar to an s-corp funded insurance policy), but you should be clear that "run it through payroll" does *not* mean that you can deduct it pre-tax from your salary via payroll (like a 401k deferral). It shows up on payroll either way, but the latter is specifically disallowed.

theplayer11
Posts: 1009
Joined: Tue Jul 22, 2014 8:55 pm

Re: HSA for single-person S-corp

Post by theplayer11 » Fri Feb 14, 2020 1:29 pm

meeotch wrote:
Fri Feb 14, 2020 1:21 pm
I've updated the original post to hopefully clarify what I'm talking about. There are indeed two ways of going about this. Anyway, I've made my decision - so thanks for the replies.

@theplayer11 - the contribution will show up on payroll (similar to an s-corp funded insurance policy), but you should be clear that "run it through payroll" does *not* mean that you can deduct it pre-tax from your salary via payroll (like a 401k deferral). It shows up on payroll either way, but the latter is specifically disallowed.
sounds like you don’t need/want help. Good luck

Topic Author
meeotch
Posts: 8
Joined: Sun Sep 15, 2013 12:59 am

Re: HSA for single-person S-corp

Post by meeotch » Fri Feb 14, 2020 1:42 pm

theplayer11 wrote:
Fri Feb 14, 2020 1:29 pm
sounds like you don’t need/want help. Good luck
If anyone disagrees with the way I've decided to go about it, I'm still happy to hear their rationale. The original question was a request for help finding & interpreting the relevant statutes / IRS guidance.

But yes, I hope my edits to the original post put an end to the side-discussion regarding whether the question is even legitimate or not.

Post Reply