Reporting S Corporation’s HSA

When your S corporation contributes to your employees’  HSA accounts, the contributions become the employees’ property.  Your employees use the money to pay their current or future medical expenses.

The HSA contributions are tax-free fringe benefits to your employees. and a deduction to your S corporation.  Your S corporation must report these contributions on Form W-2 in box 12 using the code W.

The trustee or custodian of the HSA is generally a bank or an insurance company.  It reports distributions from the HSA on Form 1099-SA.

If employees are more than 2 percent shareholders, HSA contributions by your S corporation are treated as wages.  Thus, the HSA shareholders-employees’ contributions are added in box 1 of Form W-2.  The shareholders-employees deduct the contributions on individual tax return Form 1040 by completing Form 8889.

If you would like to learn more about this tax strategy, please call Susan at 847.895.9880.