IRS Addresses Two Issues in Proposed Regulations Regarding Employers' Contributions to HSAs

July 5, 2007 — 1,426 views  
Become a Bronze Member for monthly eNewsletter, articles, and white papers.

In 2006, the IRS issued final regulations regarding employers' contributions to health savings accounts (see Tax Hot Topics 2006-17). The IRS has now issued Prop. Reg. Sec. 54.4980G-4, Q&A 14, 15 and 16 to address two specific issues that were not addressed in the final regulations.

Under section 4980G, an employer must make comparable contributions to employees' HSAs. However, an employer is not required to make contributions for eligible individuals who have not established an HSA or have not notified the employer that an HSA has been established. In order to give employees ample time to establish an HSA, the proposed regulations provide that employees who have not established an HSA by the Dec. 31 of the calendar year for which the employer contributions are available can still receive an employer contribution if certain actions are taken in the following year, as follows:

  • The employer must provide a notice to the employee by Jan. 15.
  • The employee must establish an HSA and notify the employer by Feb. 28. If the employee does not do so, then the employer is not required to make the contribution.
  • If the employee meets this deadline, then the employer must make the contribution (plus interest); the deadline for the contribution is Apr. 15.

The regulations would apply to employer contributions made on or after the date the final regulations are published in the Federal Register. In the meantime, employers are not required to make contributions to an employee's HSA if the employee has not established an HSA by Dec. 31.

The regulations also address whether an employer may accelerate part or all of its contributions for the year in situations where the employee has incurred qualifying medical expenses exceeding the employer's year-to-date HSA contributions. The regulations permit this, as long as certain requirements are met.

The information contained herein is general in nature and is based on authorities that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice or opinion provided by Grant Thornton LLP to the reader. This material may not be applicable to, or suitable for, specific circumstances or needs, and may require consideration of non-tax factors and tax factors not described herein.

Contact Grant Thornton LLP or other tax professionals prior to taking any action based upon this information. Changes in tax laws or other factors could affect, on a prospective or retroactive basis, the information contained herein; Grant Thornton LLP assumes no obligation to inform the reader of any such changes. All references to "Section," "Sec.," or "§" refer to the Internal Revenue Code of 1986, as amended.

Grant Thornton LLP