The first bill signed into law during the 2011-2012 Wisconsin legislative session made health savings accounts (HSAs) contributions and earnings deductible for state tax purposes. The bill was retroactive to January 1, 2011.
- For employers, this means that contributions made to an employee’s HSA in tax year 2011 will not have to be included as income on the employee’s W-2. These amounts would still be recorded for tax year 2010 however.
- For employees, contributions to an HSA will no longer count as income, whether the contributions were made by the employer or the employee. In addition, earnings on an HSA are also state tax deductible.
Most HSA requirements are federal, and the definition of qualifying health plans, contribution limits and other requirements for HSAs are unchanged by the new state law. However, last year’s Patient Protection and Affordable Care Act included changes to the definition of qualified medical expense. It also increased the penalties for using HSA funds for non-medical expenses as of January 1, 2011.
HSA contributions have been tax advantaged on the federal level since 2004. Prior to the enactment of this 2011 Wisconsin Act 1, Wisconsin was one of only four states that did not mirror federal law in making HSA contributions deductible. The Alliance and many other business and insurance organizations supported the legislation, which was introduced in each of the past three legislative sessions. The bill was approved with bipartisan support.