Effective Dates: 11/05/2024 - Present Previous | Next

TN 38 (11-24)

RS 01402.038 Tax-Favored Health Plans

A. Introduction of tax favored health plans

Congress created various programs to give workers tax advantages to offset health care costs:

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    Archer and Medicare Advantage Medical Savings Accounts (MSAs),

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    Health Flexible Spending Arrangements (FSAs),

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    Health Reimbursement Arrangements (HRAs), and

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    Effective January 1, 2004, Health Savings Accounts (HSAs) provided by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (P.L. 108-173).

The following discusses whether employer and, or employee contributions to such plans are wages (i.e., covered earnings) for Social Security purposes. (MSAs and HSAs are also available to self-employed individuals. For information regarding treatment of contributions to these plans as self-employment, see RS 01803.000).

B. Definitions of health plans

1. Medical Savings Account (MSA)

An Archer MSA is a tax-exempt trust or custodial account set up with a U.S. financial institution (such as a bank or an insurance company) that an individual with an employer-provided high deductible health plan (HDHP) or their employer (but, not both in the same year) deposits money for the use of the individual’s qualified medical expenses. (A Medicare Advantage MSA is an Archer MSA in which the Medicare program deposits money solely for the qualified medical expenses of an individual enrolled in Medicare and who has a HDHP that meets Medicare guidelines.)

2. Flexible Spending Arrangement (FSA)

A Health FSA is an employer-established benefit plan used to reimburse employees for qualified medical expenses. Funding for FSAs are usually through an employee’s voluntary salary reduction agreement with the employer (see RS 01402.010) and the employer may also contribute to the FSA. (Self-employed individuals are not eligible for FSAs.)

3. Health Reimbursement Arrangement (HRA)

An HRA is an employer-established benefit plan, funded solely by the employer, used to reimburse employees for qualified medical expenses. (Self-employed individuals are not eligible for HRAs.)

4. Health Savings Account (HSA)

An HSA is a tax-exempt trust or custodial account that an eligible individual sets up with an HSA trustee to pay for qualified medical expenses the individual incurs. (An HSA trustee can be a bank, an insurance company, or anyone already approved by the IRS to be a trustee of Individual Retirement Arrangements (IRAs) or Archer MSAs.) An employer may also contribute to an employee’s HSA.

C. Policy for contributions

Employer contributions to any of the plans listed in RS 01402.038B. in this section are not wages for purposes of Social Security coverage.

Employee contributions to an FSA via a qualified salary reduction agreement with the employer are not wages for purposes of Social Security coverage; however, employee contributions to an FSA via any other method are wages.

Employee contributions to an MSA or HSA are wages for purposes of Social Security coverage. (NOTE: Employees cannot contribute to an HRA.)

To Link to this section - Use this URL:
http://policy.ssa.gov/poms.nsf/lnx/0301402038
RS 01402.038 - Tax-Favored Health Plans - 11/05/2024
Batch run: 11/05/2024
Rev:11/05/2024