Health Savings Accounts (HSAs) are one of the most powerful tax-advantaged tools out there. They allow you to save for medical expenses with pre-tax dollars, grow your savings tax-free, and withdraw funds for qualified medical expenses without paying tax. For many small business owners, it feels like the perfect solution.

But if you’re an S-Corp owner, the rules around HSAs aren’t quite as simple. Let’s break it down in plain language so you know what’s possible—and what’s not.

First, a Quick Refresher on HSAs

To qualify for an HSA, you must be enrolled in a high-deductible health plan (HDHP). If you qualify, you can contribute up to the annual IRS limit (for 2025, that’s $4,300 for individuals and $8,550 for families, plus a $1,000 catch-up contribution if you’re over 55).

The triple tax benefit makes HSAs unique:

1. Contributions are pre-tax (or tax-deductible if you contribute personally).

2. Growth is tax-free.

3. Withdrawals for qualified expenses are tax-free.

If you’d like a quick overview straight from the IRS, this short video walks through the basics of how HSAs work before we get into the S-Corp-specific rules:

Watch the IRS HSA Overview Video

The Catch for S-Corp Owners

Here’s where it gets tricky.

If you own more than 2% of an S-Corp, you’re considered a “self-employed owner,” not an employee in the traditional sense. That classification changes how fringe benefits—including HSAs—are treated.

• S-Corps can’t make pre-tax HSA contributions for you.

  Contributions made by the business on your behalf are treated as taxable wages (added to your W-2).

• You can still contribute personally.

  As long as you meet the HDHP requirements, you can make HSA contributions directly—just not through the S-Corp payroll. These contributions are considered “above-the-line deductions” on your personal tax return (Form 1040).

• Family members matter.

  If your spouse or child works for the S-Corp but you own more than 2%, the same rules apply to them as well. They’re not considered a regular employee for fringe benefits.

What This Means in Practice

Let’s say you own 100% of an S-Corp and are covered by a qualifying HDHP:

• Your S-Corp cannot put money into your HSA pre-tax.

• Instead, you can contribute directly from your personal bank account and take the deduction on your personal return.

• You’ll still get the full tax benefit of an HSA—it just can’t flow through payroll the way it might for a W-2 employee. However, an S-Corp can make the contribution by adding it as a wage in your Gusto/payroll run, similar to how Health Insurance is handled. In that case, it’s reported in Box 1 on the W-2 but exempt from Boxes 3 and 5.

If this sounds familiar, you may want to also read our guide on how partnerships are treated for self-employment tax, since many of the rules about ownership and tax treatment overlap.

Key Takeaways for S-Corp Owners

1. You can use an HSA, but you’ll need to contribute personally, not through the S-Corp.

2. Employer contributions made by the S-Corp are treated as taxable income.

3. You still get the tax deduction on your Form 1040 if you qualify.

4. Always double-check contribution limits and IRS plan eligibility rules before funding your account.

Final Thoughts

HSAs can still be a smart strategy for S-Corp owners—but the rules are different, and it’s easy to get tripped up if you assume you’re treated like a traditional employee.

If you’re an S-Corp owner wondering how to handle your HSA (or if you’re trying to coordinate health benefits with other tax strategies), our team at Misty Newsome CPA is here to help. Reach out today, and let’s make sure you’re maximizing your tax savings the right way.