Sole proprietors are treated similarly to individuals making HSA contributions on their own, the sole proprietor (the owner) may deduct the amount of their HSA contributions and health insurance payments on their personal income tax. Sole proprietors are not allowed to deduct their own HSA contributions as a business expense; however, amounts contributed on behalf of employees may be deductible on their Schedule C. The owners HSA contribution is not a deduction attributable to the self-employed individual’s trade or business so it is not taken as a deduction on Schedule C, nor is it taken into account in determining net earnings from self-employment on Schedule SE.

No. Self-employed people may not contribute to an HSA on a pre-tax basis. However, they may contribute to their HSA with after tax dollars and take the above the line deduction on their personal income tax return.

Yes. A sole proprietor with a number of employees may find it beneficial to institute a section 125 plan (or cafeteria plan) to allow employees to make pre- tax, salary deferrals into their HSAs. However, the sole proprietor would not be eligible to participate in such a plan.

Partnerships, LLCs¹ and S-corporations are generally treated as flow through entities for purpose of HSA contributions made on behalf of the owners. That is, HSA contributions and health insurance payments benefiting the owners are not deductible by the business but flow through to the owner.

Contributions on behalf of partners by the partnership are treated as distributions to the partners (under §731), they are not deductible by the partnership and do not affect the distributive shares of partnership income and deductions. The contributions are reported as distributions of money on Schedule K-1 and the partner can then take a deduction for the HSA contribution on their personal income tax return. Contributions made pursuant to a Section 125 plan will be added back to the owners as a taxable fringe benefit negating any tax benefit they might have otherwise received from a Section 125 plans.

Anyone that owns more than 2% of an S-corporation is regarded as an owner of the corporation with regards to HSA contributions. As a result they can not make pre-tax contributions to their HSA via a salary reduction. Any contributions made on their behalf by the corporation are taxable and they may be deducted on their personal income tax.

No. Partners are not eligible to make pre-tax contributions to their HSAs via a salary reduction. Instead they may make personal contributions using after-tax dollars and take the above the line deduction on their personal income tax return.

Yes. By establishing a 125 plan or a cafeteria plan a partnership can provide for its employees to make pre-tax contributions to their HSAs.