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The IRS has released final regulations on employer comparable contributions to health savings accounts (HSAs). The regulations also provide guidance on the method and timing of reporting and paying excise taxes due under the Consolidated Omnibus Budget Reconciliation Act (COBRA), the Health Insurance Portability and Accountability Act (HIPAA) and the HSA (and Archer medical savings account) comparable contribution rules.
Comparable contributions
Over the last several years, the IRS has issued guidance on employers’ comparable contributions to HSAs (see Watson Wyatt Insider,
September 2008,
September 2006 and
October 2005). The most recent guidance applies to HSAs that are not part of a cafeteria plan.
As the IRS did not receive significant comments on the 2008 proposed regulations, the final regulations generally follow those proposed. Employers may contribute more to the HSAs of non-highly compensated employees (NHCEs) than they contribute to the accounts of highly compensated employees (HCEs) with comparable coverage during a period. Employers may not contribute more to the HSAs of HCEs than they contribute to the HSAs of NHCEs with comparable coverage.
Earlier guidance allowed individuals who were eligible on the first day of the last month of the employee’s taxable year (Dec. 1 for most taxpayers) to contribute (or their employer to contribute) the maximum annual HSA contribution allowed under their high-deductible health plan (HDHP) coverage. However, those who take advantage of the opportunity must remain enrolled in the HDHP throughout the following year or face tax penalties. Under the final regulations, the employer can contribute the maximum amount on behalf of all individuals who are eligible on Dec. 1, including eligible individuals hired after Jan. 1 (midyear eligible individuals). Alternatively, the employer may contribute a pro rata amount based on the number of months the employee was eligible. In either case, the employer must contribute on an equal and uniform basis to the HSAs of all comparable midyear eligible individuals.
The regulations also address comparability rules for qualified HSA distributions, which are direct distributions from health flexible spending accounts (FSAs) or health reimbursement accounts (HRAs) to HSAs. If an employer offers qualified HSA distributions to any employee, the employer must offer such distributions to all employees who qualify as eligible individuals under any HDHP. Conversely, an employer may offer qualified HSA distributions to eligible individuals enrolled under the employer’s HDHP but not to eligible individuals who are not enrolled in the HDHP.
The final regulations on HSA comparable contributions apply to employer contributions made on or after Jan. 1, 2010.
Reporting and payment of excise taxes
Excise taxes are imposed for noncompliance with COBRA, HIPAA and the rules for Archer MSAs and HSAs. Like the proposed regulations, the final regulations require employers to report these excise taxes on Form 8928, “Return of Certain Excise Taxes Under Chapter 43 of the Internal Revenue Code.” For COBRA and HIPAA excise taxes, the return generally is due by the tax return due date (no extension). For excise taxes related to Archer MSAs or HSAs, the return is due by April 15 of the year following the year the noncomparable contribution was made.
These excise tax rules take effect for excise tax forms due by Jan. 1, 2010.
December 2009
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