Do Employer Contributions Affect HSA Limit? (Updated)

Both employers and employees often ask the question “Do employer contributions affect HSA limit?” Today we’ll help answer that question, as well as explain why employers should consider offering an HSA! (Did you know BASIC offers HSA Administration for free? More on that later.)

Health Savings Accounts (HSAs) have become increasingly popular among individuals looking to save for medical expenses while enjoying tax advantages. Before we delve into the impact of employer contributions, let’s first understand the basic limits associated with HSAs. As of 2024, individuals with qualifying high-deductible health plans (HDHPs) can contribute up to a certain limit to their HSAs each year. For 2024, the contribution limit for individuals with self-only coverage is $4,150, while those with family coverage can contribute up to $8,300 annually.

Employers may choose to contribute to their employees’ HSAs as part of their benefits package. These contributions can vary widely from employer to employer and may be made in addition to or instead of employee contributions. Employer contributions to HSAs are generally considered tax-free for both the employer and the employee, making them a valuable benefit.

Do Employer Contributions Affect HSA Limit?

Updated 3-6-24

One common question is whether employer contributions count toward the annual HSA contribution limits set by the IRS. The short answer is yes, employer contributions count toward the employee’s contribution amount. Employees may contribute the remaining amount up to the IRS-mandated limits. For example, let’s say an individual with self-only coverage has a $4,150 HSA contribution limit for the year. If their employer contributes $1,000 to their HSA, the individual can still contribute up to $3,150 to reach the limit.

Employer contributions to HSAs can significantly enhance the benefits of these accounts for employees. Not only do they provide additional funds for medical expenses, but they also reduce the financial burden on employees, especially those facing high healthcare costs. Additionally, employer contributions can help employees maximize the tax advantages of HSAs. Since employer contributions are typically excluded from the employee’s taxable income, employees may enjoy greater tax savings overall.