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Anne
Anne, Master Tax Preparer
Category: Tax
Satisfied Customers: 2396
Experience:  Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses
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HSA with a bank. Can this be funded with pretax funds from

Customer Question

HSA with a bank. Can this be funded with pretax funds from my 100% owned corporation? Will the form 5498 be confusing to the IRS if I don't take a personal deduction?
Submitted: 3 years ago.
Category: Tax
Expert:  Anne replied 3 years ago.

Anne :

Hi

Anne :

Thank you for your question

Anne :

Unfortunately if you are a 2% (or higher) shareholderin a S Corp, a partner in a formal business partnership, or otherwise self employed, then you can't contribute pre-tax contributions to your HSA because in this case you are essentially your own employer. For technical details, you can check out IRS Notice 2005-8.

Anne :

I truly hope this information is helpful but please do not rate until you are satisfied. If you want to click on 1 or 2 just click on the continue to work with me button instead. You will then be able to add any other info or respond to what I have posted so far. Rating 3-5 gives me credit and a good rating but you can still converse with me.

Expert:  Lane replied 3 years ago.


Hi I have some additional information for you, that significantly changes the answer.

The more accurate way to say this is the following:

A company cannot contribute to the HSA account of individuals owning 2% or more of the company), pay administrative fees on their behalf and write it off as a business expense (as they could do for contributions to other employees).

HOWEVER, 2% owners or Partners themselves can have HSA compatible coverage and establish HSAs. They would need to contribute with their own after-tax dollars.

Because 2% and higher owners (or Partners) are not receiving an employer contribution, NOT ONLY can they choose to fund their HSA in any fashion they see fit (AND are not limited to the comparability requirements). ...

...at the end of the year, the owners would deduct their HSA contributions from their individual tax return.


Hope this helps

Lane
Customer: replied 3 years ago.

Lane, 100% owner of a C Corp. Does that change your answer? I'd like to deduct from the C Corp, not the individual return.


Thank you!

Expert:  Anne replied 3 years ago.
Hi again

Since Lane is no longer on line, I'm happy to help you with your follow up question.


Shareholders of C-corporations. If owners pay themselves a salary from a C corporation, their health insurance premium costs and HSA contributions are a business deduction for the corporation. If you are drawing a salary from the income that derives from your corporate business, you will have to pay a personal income tax on that income. After-salary profits are taxed to the corporation. Upon eventual distribution of the profits you and others pay tax again – at your individual income tax rate. (referred to as the Corp double taxation)

However, these contributions do not qualify for Pre Tax treatment because in this case you are essentially your own employer

Again, I truly hope this information is helpful but please do not rate until you are satisfied. If you want to click on 1 or 2 just click on the continue to work with me button instead. You will then be able to add any other info or respond to what I have posted so far. Rating 3-5 gives me credit and a good rating but you can still converse with me.