2024 Year-End Guide: HSA/FSA Contributions

Year-end processing poses a number of challenges to payroll administrators, business owners, and employers of all types. This article is aimed at guiding you through the trials of the year-end processing season.

Health Savings Accounts

A health savings account (HSA) is a tax-exempt trust created exclusively for the purpose of paying the "qualified medical expenses" of an "account beneficiary" (an individual for whom the account was established). There must be a written governing instrument creating the trust, and the instrument must reflect health savings account (HSA) requirements. Distributions of amounts treated as those used to pay qualified medical expenses are not includable in the account beneficiary's income.

Health Flexible Spending Accounts

Code Sec. 125 allows employers to offer flexible spending accounts (FSAs) to their employees to help them pay for health care costs not covered under an employer's regular plan. FSAs may be used to pay for contributory plan premiums, deductibles, and copayments or for certain medical expenses not covered by the core policy. 

Under an FSA, employees elect to contribute pretax dollars for qualified expenses at the beginning of the plan year. These pretax contributions are deducted from wages, lowering the employee's FIT and FICA taxable compensation. As employees incur qualified expenses, they are reimbursed up to the total amount they elected to contribute at the beginning of the plan year. 

Limitations on Contributions

For 2025, contribution limits for these types of accounts are as follows: 

• HSAs - For employees electing self-only coverage, the limit that could be contributed to the HSA account is $4,300 ($4,150 in 2024). The limit is $8,550 ($8,300 in 2024) for family coverage. An additional $1,000 is permitted for employees who are at least age 55 by the end of the year. For additional information, see  Payroll Guide ¶3408. 
• FSAs - The 2024 maximum FSA contribution limit is $3,300 ($3,200 in 2024). The maximum carryover limit is $660 (20% of $3,300).

Taxation of Contributions

The contributions are subject (or exempt) to the following types of taxation:

• HSAs – HSA contributions, subject to annual limits, are exempt from FICA taxes, federal state and local withholding, and federal and state unemployment taxes.
• FSAs - No employment or federal income taxes are deducted from employee contributions. The employer may also contribute.

Reporting Contributions

These various contributions are reported in a variety of ways: 

• HSAs – Employer and employee contributions are reported on Form W-2 in Box 12 - Code W. 
• FSAs - There are no W-2 reporting requirements.