IRS Issues Final Comparability Rules for HSAs

Wednesday, October 07, 2009

In early September, the IRS published Final Regulations on employer comparable contributions to Health Savings Accounts (HSAs). The Final Regulations become effective for employer contributions made to an HSA on or after January 1, 2010.

Highlights include:

•         Employers may contribute up to the maximum annual contribution amount for the calendar year (based on the employees’ high deductible health plan [HDHP] coverage), to all employees who are eligible individuals on the first day of the last month of the employee’s taxable year. This would include employees who worked for the employer for less than the entire calendar year or who become eligible individuals after January 1 of the calendar year.

•         Employers may make a larger contribution to the HSAs of nonhighly compensated employees than to their highly compensated employees.

•         Employers may make a larger contribution for employees with self plus two HDHP coverage than employees with self plus one HDHP coverage. This would apply even if the employees with self plus two coverage are all highly compensated employees and the employees with self plus one coverage are all nonhighly compensated employees. The same rule applies to other levels of coverage.

•         Employers who offer qualified HSA distributions for only their covered employees are not required to offer qualified HSA distributions to the employees who are not covered under their HDHP.

Recall that employer contributions made through a Section 125 cafeteria plan are not subject to these comparability regulations. However, they must comply with the nondiscrimination testing rules in §125 of the Internal Revenue Code.

These regulations also finalize rules for reporting of excise taxes for various violations related to group health plans, including COBRA.