Can someone please advise whether there is any way other than a cafeteria plan to withhold the money pretax from the employees check? My company, which I'm fairly new at, has had an HSA plan since 2005. Apparently the insurance man sold them the deal by telling them that it would be pre-tax dollars. Now along I come (bookkeeper) and I'm told by the accountant that the whole thing is incorrect and not being reported correctly. We do NOT have a cafeteria plan so the money has to be withheld post tax and then the employees take the deduction at the end of the year. I was told that I needed to bring this year current and correct so I had to tax them on the amounts that have been withheld in January, February and March. Let me tell you there are some very unhappy employees and I feel like the proverbial "messenger". Can anyone clarify this for me and tell me how this should be handled? I would be eternally greatful.

The accountant is correct. But then so too is the salesman--the HSA contributions are tax-free, just in the way explained by the accountant. Unfortunately telling employees and other management that corrective steps are necessary, and that matters must be handled differently in the future, to bolster the claim for tax-free treatment only slightly reduces the size of the target on your back as the messenger.

After you get the past fixed, you could adopt a cafeteria plan that offers HSA contributions as the only tax-free benefit option. That way the HSA contributions would not only be tax-free, but FICA-free too.

My original question was whether there is any way other than a cafeteria plan to withhold the money pretax from the employees check? I am assuming you are saying no but you didn't actually say it. If you don't mind could you please respond again? Thank you.

Employer contributions do not have to go through a 125 to be tax free - employee contributions do

Employees cannot pretax amounts without a 125 plan. It is the 125 plan that turns them into employer contributions -- all employer contributions are pretax, assuming employer contributes directly to HSA.

Employee contributions not run through a 125 are to be after-tax and then an above the line deductible come tax time. The only difference is the lack of the FICA savings received with pre-tax contributions.

J Snyder
Great Lakes HSA

If the individual has a choice about receiving pay (in the check) or the HSA contribution (taken from the check), then a cafeteria plan is the only device.