NU Online News Service, Jan. 28, 2004, 1:26 p.m. EST – The Internal Revenue Service has spelled out the rules for recording employer contributions to employees’ health savings accounts.[@@]

Employers should record the contributions by using a new code, Code W ? “Employer’s contribution to an employee’s Health Savings Account” ? in box 12 on the 2004 Form W-2, the IRS says in an announcement published in the Jan. 20 issue of the Internal Revenue Bulletin.

The IRS is adding Code W to the 2004 instructions for Forms W-2 and W-3.

President Bush made HSAs a reality in late 2003, when he signed the Medicare Prescription Drug, Improvement and Modernization Act of 2003. In most cases, employers and employees can deduct qualified HSA contributions from taxable income.

Generally, HSA contributions “are not subject to income, Social Security/Medicare, or Railroad Retirement taxes,” the IRS says.

Although MPDIMA exempts HSA contributions from federal taxes, it requires employers to report their HSA contributions on employees’ W-2s, the IRS says.

The full IRS announcement is on the Web at http://www.irs.gov/pub/irs-irbs/irb04-03.pdf