Your health savings account, the new 2026–2027 IRS per diem rates, and Pennsylvania’s new local sales tax rules
Autumn is a natural checkpoint for both your personal and business finances. The fourth quarter is when year-end planning decisions still have room to make a difference, and three recent developments deserve a place on your list. The first applies to anyone with a health savings account, especially one opened through an employer: if your HSA sits with a high-fee provider, it may be quietly costing you money. For Small Business Owners, the rules work differently. The second is the IRS’s annual update to the per diem rates used to substantiate business travel. The third is a significant change is related to Pennsylvania Sales Tax collection for Philadelphia and Allegheny County. The last two will take effect for enforcement on October 1, 2026 (although the Sales tax is retroactive to the beginning of 2026).
Here is what each one means in practical terms, and what I recommend you do about it.
PART ONE: YOUR HSA
Your HSA Belongs to You, Not Your Employer
Most health savings accounts are opened through an employer, which leads many people to assume the employer controls the account. It does not. An HSA is portable, and you are free to move the money to a provider of your choosing.
Why does that matter? It does because the provided HSA through an employer tend to select plans that carry ongoing monthly account fees, pay less interest than you could earn elsewhere, and limit your investment choices to a short menu of funds. If you usually use your HSA money for medical bills, shortly after it goes in, those drawbacks are minor and staying put is reasonable. But if you are using your HSA the way it works best, as a long-term, tax-advantaged investment account for future medical costs or retirement, fees and fund selection become significant over time.
You Can Have More Than One HSA
You do not have to close your workplace account to move money out of it. A common and effective approach is to keep two accounts:
The employer account stays open so it can continue receiving your payroll deferrals and any employer contributions.
A personal HSA at a provider you choose holds your accumulated balance, invested the way you want, and receives periodic transfers from the employer account.
Keeping contributions on payroll is worth it. Contributions made through a cafeteria plan avoid FICA payroll taxes as well as income tax, while contributions you make on your own reduce only income tax. This is for employees and not if you are a 2% Shareholder-Employee (I detail this more below). State treatment varies: California and New Jersey tax HSA contributions, while Pennsylvania permits a deduction on the state personal income tax return.
One important limit: the annual contribution cap applies to all of your HSAs combined. Opening a second account does not increase how much you can contribute.
“An HSA is portable. Where it is held, and how it is invested, is your decision.”
Two Ways to Move the Money
Trustee-to-trustee transfer. The old provider sends the funds directly to the new provider. This is the cleanest method, with the fewest opportunities for errors or tax misreporting, and there is no limit on how often it can be done. The trade-off is cost: expect a transfer fee in the range of $25 to $50, and possibly an account closing fee as well.
Indirect rollover. You request a distribution of the account balance paid to you, then deposit it into your new HSA within 60 days, designating it as a rollover rather than a new contribution. This can avoid transfer fees, but it requires real diligence. A few practical points:
Only one indirect rollover is permitted in any 12-month period.
There is no need to tell the old provider that the distribution is for a rollover. Saying so may prompt them to close the account and charge a closing fee, which defeats the purpose if you are keeping that account open for payroll contributions.
Complete the new provider’s deposit form carefully so the funds are coded as a rollover, not as a contribution.
Done correctly, a rollover is not taxable, is not deductible, and does not count against your annual contribution limit. It simply moves money you already have. A trustee-to-trustee transfer is not considered a rollover at all, so it is not subject to the once-a-year rule.
Whichever method you use, moving funds no more than once a year keeps fees reasonable. For clients contributing through payroll all year, a single trustee-to-trustee transfer at year-end is usually the simplest plan. If you prefer the indirect route, tie it to a date you will not forget, like your own birthday, so you stay clear of the 12-month rule.
The indirect rollover saves a modest fee but carries real risk. Consider what can go wrong:
Missing the 60-day window turns the rollover into a distribution. The money loses its tax-free growth, and if it is not used for qualified medical expenses, it can become taxable income and may also be subject to an additional penalty tax.
Doing it more than once in 12 months can produce the same unintended distribution.
Miscoding by the receiving provider can turn the deposit into an excess contribution, which creates its own problems at tax time.
Reporting timing works against you. The old provider issues Form 1099-SA showing money leaving the account, but Form 5498-SA, which shows the rollover coming in, does not have to be issued until May 31, well after the April filing deadline.
That last point is the one that catches people. If your return is filed before Form 5498-SA arrives, a legitimate rollover can be reported as a distribution, inviting IRS correspondence or tax you do not actually owe. If you complete an indirect rollover during the year, let your tax preparer know, and consider extending your return so the reporting can be confirmed.
“A $50 transfer fee is a bargain compared with a rollover that becomes a taxable distribution.”
When You Own the Business: HSA Rules for Owners
Everything above is written from the employee’s point of view. If you own your business, an HSA can be just as valuable, but how you contribute depends on how your business is structured.
Start with eligibility. You must be covered by an HSA-eligible high-deductible health plan and have no other disqualifying coverage. Beginning in 2026, bronze and catastrophic plans purchased through the ACA marketplace qualify, which opens the door for many self-employed owners who buy their own coverage. Direct primary care arrangements costing no more than $150 a month for one person, or $300 a month for a family, also no longer disqualify you.
Sole proprietors, Partners, and S corporation owners who hold more than 2% of the company are not treated as employees for cafeteria plan purposes, so they cannot make pre-tax contributions through payroll. Instead, you contribute on your own and deduct the amount as an adjustment to income on Schedule 1 of Form 1040, supported by Form 8889. The deduction reduces income tax, but not self-employment tax.
If your Partnership pays into your HSA, the treatment depends on why. A contribution for services you perform is a guaranteed payment: the partnership deducts it, and it is included in your income and subject to self-employment tax. A contribution that is not for services is treated as a cash distribution, which the partnership does not deduct and you do not include in income. Either way, you then deduct the HSA contribution on your own return.
If your S corporation pays into your HSA, a special set of rules applies, covered in more detail below.
A Closer Look: HSA Contributions for S Corporation Owners
When an S corporation contributes to the HSA of a shareholder-employee who owns more than 2% of the company, IRS Notice 2005-8 treats the contribution as wages paid for services. That single fact drives the rest of the reporting:
On the W-2. The contribution is included in the shareholder-employee’s taxable wages in Box 1 and is also reported in Box 12 using code W.
On your personal return. You then deduct the same amount as an adjustment to income on Schedule 1 of Form 1040, and Form 8889 must be filed to report all HSA contributions made for the year. The income inclusion and the deduction generally offset each other for income tax purposes.
On the corporate return. The S corporation deducts the contribution. For rank-and-file employees, HSA contributions are reported as part of employee benefit programs on Form 1120-S, Line 18.
This is a different result than for regular employees, whose employer HSA contributions are excluded from income entirely and are not deducted again on their own returns. The treatment for 2% shareholders follows the same logic as the partnership rules for guaranteed payments, where an owner’s benefits are run through income first and then deducted personally.
An example. Suppose your S corporation contributes $4,400 to your HSA in 2026, the full self-only limit. Your W-2 shows that $4,400 as part of Box 1 wages and again in Box 12 with code W. On your personal return, you deduct the $4,400 on Form 1040 and report it on Form 8889. The corporation deducts the contribution on its return. The owner still ends up with the tax benefit of the HSA; it simply arrives through the personal return rather than through payroll.
Health insurance follows a similar path. Premiums the S corporation pays for a more-than-2% shareholder are also treated as taxable wages, although they are not subject to FICA. The amount is typically shown in Box 14 of the W-2, and the owner claims the self-employed health insurance deduction on Form 1040.
A side benefit for retirement plans. Because these benefits increase an owner’s W-2 wages, they can also increase the compensation used to calculate an employer match. For example, if your S corporation sponsors a SIMPLE IRA with a 3% match, the higher wage figure produces a slightly larger match for you.
Because these contributions touch payroll, the W-2, the corporate return, and your personal return, getting the setup right before year-end saves corrections later.
Contribution limits are the same for everyone and include any employer contributions: for 2026, $4,400 for self-only coverage and $8,750 for family coverage, rising in 2027 to $4,500 and $9,000. Owners age 55 or older can add a $1,000 catch-up contribution.
You have until the tax filing deadline to fund it. Contributions for 2026 can be made until April 15, 2027, which gives you time to decide once you see your year-end numbers. Employer contributions made between January 1 and April 15 can also count toward the prior year, as long as the employer tells both the employee and the HSA trustee which year the contribution is for and reports it on that year’s W-2.
One more strategy worth considering if cash flow allows: pay current medical costs out of pocket, invest your HSA balance, and keep your receipts. As long as the expense was incurred after your HSA was established, you can reimburse yourself tax-free years later, letting the account grow in the meantime.
PART TWO: BUSINESS TRAVEL
New IRS Per Diem Rates to take effect October 1, 2026
The IRS released Notice 2026-60, its annual update to the special per diem rates taxpayers can use to substantiate lodging, meals, and incidental expenses while traveling away from home on business within the continental United States. The new rates apply to travel from October 1, 2026, through September 30, 2027.
What This Means for Your Business
Per diem is a substantiation shortcut, not a requirement. You can always deduct actual allowable expenses if you keep adequate records. For businesses that reimburse employee travel, though, per diem can simplify the process considerably. A few rules to keep in mind:
An accountable plan is essential. Per diem payments are tax-free to employees only when paid under an accountable plan that documents the time, place, and business purpose of travel and requires excess amounts to be returned. Without one, reimbursements become taxable wages.
Self-employed owners have a narrower option. Sole proprietors and other self-employed individuals may use per diem rates for meals and incidental expenses, but lodging must be deducted at actual cost with receipts.
The meal limit still applies. The meals portion of a per diem is generally subject to the 50% deduction limit (80% for workers subject to Department of Transportation hours-of-service rules).
Consistency matters. If you use the high-low method for an employee, it generally must be used for all of that employee’s travel within CONUS for the calendar year. For October through December, you may continue using the prior year’s rates if you applied them consistently earlier in the year.
There is a transition period for the final three months of 2026 where employers and taxpayers can continue to use the prior rates from Notice 2025-54 or the rates noted above can be implemented immediately.
Travel expenses are also an area where clean accounting transactional work pays off. Coding travel correctly in your books, separating meals from lodging, and keeping a written reimbursement policy on file make both the deduction and any future examination far easier to support.
PART THREE: PENNSYLVANIA SALES TAX
Pennsylvania’s Local Sales Tax Now Follows the Customer
Only two places in Pennsylvania add a local sales tax on top of the 6% state rate: Philadelphia, at 2%, and Allegheny County, at 1%. Everywhere else, the state rate is the whole rate. What has changed is the rule for deciding when those local taxes apply.
Under Act 21 of 2026, enacted July 12, 2026 as part of the state budget, local sales tax is no longer based on where the seller is located. It now depends on where the customer receives the taxable product or service. This brings the local tax in line with how the state already sources its own 6% tax.
Timing matters here. The law applies retroactively to tax years beginning after December 31, 2025, but the Pennsylvania Department of Revenue has said it will hold off on enforcement until October 1, 2026, giving businesses time to update their systems.
Who Is Affected
This change reaches well beyond businesses located in Philadelphia or Pittsburgh:
Sellers outside those areas that ship or provide taxable goods or services into Philadelphia must now collect a combined 8% (6% state plus 2% local), and 7% (6% state plus 1% local) on deliveries into Allegheny County. A Lancaster County business shipping an order to a Pittsburgh customer, for example, now has a local collection responsibility it did not have before.
Sellers inside those areas previously charged their local tax on sales across the state. Now they charge it only on sales delivered into their own jurisdiction. A Philadelphia retailer shipping to a customer in Harrisburg would collect just the 6% state tax.
Buyers are still responsible for use tax on taxable items or services used in Philadelphia or Allegheny County when the seller did not collect sales tax. Those use tax rules did not change.
“If your sale is delivered into Philadelphia or Allegheny County, the local tax now travels with it.”
What to Do Now
Know where your customers are. Review your customer list and shipping addresses to identify deliveries into either jurisdiction. ZIP codes do not always follow county lines, so the Department of Revenue points vendors to address-lookup tools such as the USPS Address Information System viewer.
Update your systems. Point-of-sale, invoicing, e-commerce, and accounting software should calculate local tax based on the delivery address, not your business address.
Review exemption certificates for customers in those areas so exempt sales stay properly documented.
Look back at January through September 2026. Because the law is retroactive, some sales this year may have had too much or too little local tax collected. Keep good records and watch for further Department of Revenue guidance on how to handle prior periods before amending returns or issuing refunds.
This is exactly the kind of change where accurate accounting transactional work protects you. Clean customer records and correctly configured sales tax settings are what make the new rule manageable rather than a surprise at filing time.
The Bottom Line
These updates reward a little attention now. If your HSA has grown into a meaningful balance, take a look at what you are paying in fees and how the money is invested, and choose a transfer method you can execute cleanly. If your business reimburses travel, confirm that your policy reflects the new rates and that it qualifies as an accountable plan. And if you sell taxable goods or services anywhere in Pennsylvania, make sure your systems now charge local tax based on where your customer receives the sale.
As always, the right answer depends on your specific situation. If you would like help reviewing your HSA strategy, setting up a travel reimbursement policy, or reviewing your Pennsylvania sales tax setup, I am glad to help. Feel free to reach out by setting up an appointment or messaging me.
Sources
TheTaxBook, 2025 Tax Year, S Corporations tab
This article is for general informational purposes only and does not constitute tax, legal, or financial advice for any specific situation. Please consult a qualified professional before acting on this information.
