Tax Facts

418 / Are amounts contributed to a Health Savings Account (HSA) subject to Social Security or federal unemployment taxes and federal income tax withholding?

The definition of wages for purposes of the federal unemployment tax (FUTA) does not include any payment made to or for the benefit of an employee if it is reasonable to believe that the employee will be able to exclude the payment from income under IRC Section 106(d), which deals with contributions to HSAs.1

Unfortunately, a similar change was not made to IRC Section 3121(a) with respect to FICA. The IRS has stated, however, that employer contributions to an HSA are not subject to withholding from wages for income tax or subject to the Federal Insurance Contributions Act (FICA), the Federal Unemployment Tax Act (FUTA), or the Railroad Retirement Tax Act.2 A similar statement has been made by the Joint Committee on Taxation.3

1. IRC § 3306(b)(18).

2. Notice 2004-2, 2004-1 CB 269, A-19.

3. General Explanation of Tax Legislation Enacted in the 104th Congress (JCT-12-96), n. 1642, p. 324.

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