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HSA contributions through payroll deductions are generally exempt from FICA withholding. Does this apply to the additional .9% medicare tax for income > 200k?

For example, after reaching 200k in W-2 income in a given tax year, an employee decides to contribute $1000 to their HSA through payroll deductions. Will their FICA withholding be reduced by an additional $9 compared to the case where they contributed prior to reaching 200k in W-2 income?

3

the IRS defines:
HSA contributions made under a salary reduction arrangement in a section 125 cafeteria plan aren’t wages and aren’t subject to employment taxes or (Social Security, Medicare) withholding.

Although the higher Medicare tax is not explicitly mentioned, the wording seems to be quite clear - 'aren't subject to employment tax'.

  • Thanks for the citation. That appears to be accurate though it seems additional medicare tax is also reevaluated at filing time and subject to underpayment penalties similar to regular income tax. – arcyqwerty Dec 13 '18 at 6:13
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You may be able to get some additional float out of this, by extending the time before you pay the tax, but the difference in withheld tax will become due with regular income tax (whether on estimated taxes or annual income tax filing) which is computed based on total income > 200k.

A more impactful case occurs when an employee makes under $200k at several different employers but has a total income > $200k. In this case, the amount of additional medicare tax due may be substantial.

  • I don’t see how this answer addresses the question. – prl Dec 12 '18 at 16:13
  • @prl: the answer is yes withholding will be reduced but with the caveat that the taxpayer will have to remit the same amount on either estimated or annual tax filings so they don't really get to keep the money the same way they normally do for HSA payroll contributions – arcyqwerty Dec 13 '18 at 6:12

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