The same deduction costs 73 cents through a 401(k) and 66 through a payroll HSA
Published 2026-11-09 · updated 2026-11-09 · figures for tax year 2026
Two payroll deductions of the same size do not cost the same. A traditional 401(k) reduces income tax but leaves Social Security and Medicare untouched. An HSA funded through payroll reduces both — it is exempt from FICA as well. Same $5,000, different arithmetic, and the gap is measurable to the cent.
Three paths, one salary
$70,000 gross, single, California, nothing else deferred. The last column is the part people miss: FICA is identical between no deferral and a 401(k), and only falls for an HSA.
| Arrangement | Take-home | Federal tax | FICA paid |
|---|---|---|---|
| No deferral | $54,900 | $6,570 | $5,355 |
| Traditional 401(k) | $51,242 | $5,620 | $5,355 |
| HSA through payroll | $51,624 | $5,620 | $4,973 |
The 401(k) row gives up $3,658 of take-home for $5,000 deferred — $0.73 per dollar. The HSA row gives up $3,275 for the same $5,000 — $0.66 per dollar. The difference is exactly $382.50: $5,000 × 7.6% of FICA that never gets computed at all.
Why FICA survives a 401(k)
Section 125 is the answer, and it is not about retirement. A 401(k) deferral is excluded fromincome tax under the plan rules, but it stays inside the definition of wages for Social Security and Medicare. Cafeteria plans — the mechanism HSAs use when funded through payroll — exclude the amount from both. Two exclusions that look identical on a payslip produce different totals underneath, and the payslip only shows the total.
The number is a rate, not a policy
7.6% is 6.2% Social Security plus 1.5% Medicare. Social Security stops at $184,500, so above that income the HSA advantage shrinks to 1.5% — the same mechanism, a smaller number. Below the base, every dollar routed through a cafeteria plan saves the full 7.6%.
What this does not mean
It is not free money. The $382.50 is a tax that is not levied, not a refund. It also lowers the wage base used for future Social Security benefits — a real trade-off that no payslip shows and that this article does not pretend to price.
HSA eligibility is not universal. A payroll HSA requires a qualifying high-deductible plan; a 401(k) does not. The comparison above is about the tax treatment of the same dollar once the account exists, not about which account you are allowed to open.
State treatment can differ. A handful of states do not follow the federal exclusion for HSA contributions, which would reduce the advantage by the state rate on $5,000. California follows the federal treatment; a state-by-state check is a separate question.
Federal and state figures come from the 2026 tables with the standard deduction, single filing status and California. The HSA row is computed as the 401(k) result plus the 7.6% FICA difference, because the calculator models pre-tax deferrals as income-tax-only — the same way the payslip does for a 401(k).
Put a number on it
The same mechanisms on an actual salary. Every figure here is computed by the engine that serves the calculators, so it matches the page it opens — nothing is copied.