Employer Eligibility Verification

An individual does not need to be an employee to be eligible for HSA contributions. Partners in a partnership, more-than-2 percent shareholders in a subchapter S corporation, sole proprietors and other self-employed individuals may be eligible for HSA contributions.

However, since these individuals are not employees, they cannot contribute to an HSA with pre-tax salary reductions under a cafeteria plan, and they cannot receive pre-tax employer contributions to their HSAs. IRS Notice 2005-8 provides more information about the tax treatment of HSA contributions for partners and more-than-2 percent shareholders.

When an employer makes a pre-tax contribution to an employee’s HSA, the employer should have a reasonable belief that the contribution will be excluded from the employee’s income. However, the employee, and not the employer, is primarily responsible for determining eligibility for HSA contributions. IRS Notice 2004-50 states that an employer is only responsible for determining whether the employee is covered under an HDHP or any low-deductible health plan sponsored by the employer, including health flexible spending accounts (FSAs) and health reimbursement arrangements (HRAs).

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