If there is no Section 125 Plan in place, how are an employee's payroll contributions to an HSA treated for tax purposes?

When there is no Section 125 Plan in place, an employee's payroll contributions to a Health Savings Account (HSA) are considered taxable income. This is because without a Section 125 Plan, which allows for pre-tax contributions, the contributions made to the HSA are deducted from the employee's gross income after taxes have been calculated. As a result, these contributions appear on the employee's W-2 as part of their taxable income for the year, and the employee will pay income tax on these amounts.

In contrast, when Section 125 is utilized, contributions can be made as pre-tax deductions, thereby reducing the taxable income for the employee. However, in the absence of such a plan, the traditional taxable treatment applies, making it necessary for individuals to adjust their tax filings accordingly to reflect the contributions made to their HSAs.