Employer payroll Tax savings using section 125 with HSA plans

hsa Trustee Services a nationwide provider specializing in opening Health Savings Accounts/HSA, working with Core Documents, Inc., a nationwide company in providing compliant plan documents for Section 125 Premium Only Plans (POP), Flexible Spending Account Plans (FSA), Section 132(f) Commuter Plans, and Health Reimbursement Arrangement (HRA), have developed a HSA module for the Section 125 Premium Only Plan that allows the HSA savings component to be pre-taxed.

Setting up a Section 125 POP with the HSA module allows business owners to save matching Social Security (FICA), as well as federal unemployment taxes (FUTA) and generally, state unemployment taxes, on the money employees contribute to their premiums as well as the HSA savings component. Employer tax savings can average 7 to 10 percent. In California and several other states the Section 125 payroll deductions reduce the threshold on which workers compensation premiums are levied for even more savings to the employer. For example, if an employee pre-taxes $5,150 into the HSA savings account, the employer will save approximately $500 in matching FICA & FUTA taxes. (These numbers are examples. A tax advisor should be consulted for information on individual state regulations.)

Employees realize savings in their FICA, federal, and, in most cases state income taxes. This is roughly a 30% tax savings. An employee who pre-taxes his HSA savings component through the POP, funds his account tax free or pretax instead of funding it with after tax dollars outside the group and then writing it off his taxes at the end of the year. It’s a save-as-you-go pretax HSA payment plan. An employee who saves the HSA maximum $5,150 through the Section 125 POP reduces his or her payroll taxes by approximately $1,545. (Depending on the employee’s tax bracket the savings could be more or less).