My employees want to contribute to their HSAs and receive the tax benefits. How does that work?

Employees can contribute to their Health Savings Accounts (HSAs) in two ways. If your business offers HSA contributions through a Section 125 cafeteria plan, employees can contribute through payroll on a pre-tax basis, which may reduce their taxable income and certain payroll taxes.

Employees who make eligible HSA contributions outside of payroll with after-tax dollars may generally claim those contributions as a deduction when filing their federal income tax return, subject to IRS eligibility requirements and annual contribution limits.

Employers should consult their benefits, payroll, or tax professional when establishing a Section 125 plan.