In Revenue Procedure 2016-28, the IRS announced the 2017 inflation adjustments that will apply to Health Savings Accounts (HSAs) under Section 223 effective for calendar year 2017.

 *Additional contribution of $1,000 is permitted for individuals age 55 and older. Those enrolled in Medicare are not eligible to participate.

Form W-2 reporting reminder

Employer contributions and employee pre-tax contributions to an HSA are required to be reported on Form W-2, box 12, Code W. Employer and employee pretax contributions, that when combined exceed the annual calendar year limit, are required to be treated as taxable wages and reported in Form W-2, boxes 1, 3 (up to the Social Security limit) and 5. (2016 Form W-2 instructions, page 10)

To avoid excise tax, employees should consider contributions they make directly to their HSA account when determining if the annual contribution limit has been reached. (IRS Publication 969)

Time to review HSA and other employee health spending account benefits

HRA- and HSA-eligible health plans constitute what are called "consumer-driven" health plans (CDHPs) because they give employees the choice of electing health plan options that best meet their projected out-of-pocket medical expenses. CDHPs also raise payroll challenges because the rules governing each of these medical reimbursement account options (FSA, HRA, HSA and MSA) are unique in terms of their tax treatment and reporting.

How companies name their health plans may not clearly communicate the type of medical reimbursement vehicle that applies, causing time-consuming and potentially costly errors in payroll system configurations.

To avoid year-end reporting complications, now is a good time to review employee elections and how they are being handled in your payroll system.

For our free special report on health spending accounts click here.

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