IRS Proposes New Rules on Employer HSA Contributions

In [REG-120476-07] , the IRS proposes an exception to the comparability rules that allows, but does not require, employers to make larger contributions to the HSAs of non-highly compensated employees than to those of highly compensated employees with comparable health care coverage. Contributions to HSAs for highly compensated employees cannot exceed the contributions made to HSAs for non-highly compensated employees with the same coverage.

The proposal also provides that employers may make the maximum annual HSA contribution based on their HDHP coverage (self only or family) as of the first day of the last month of the taxable year for individuals who are eligible individuals during the last month of the taxable year but became eligible mid-year. An employer who makes the maximum calendar year HSA contribution, or who contributes more than a pro-rata amount, on behalf of employees who are mid-year eligible individuals will not fail to satisfy comparability merely because some employees will have received more contributions on a monthly basis than employees who worked the entire calendar year, the agency said.

Special comparability rules for qualified HSA distributions and due dates for filing returns on the excise tax for non-comparable contributions is also included in the proposed rules. Existing rules provide that an excise tax equal to 35% of the aggregate amount contributed by the employer to the HSAs of its employees during a calendar year is imposed on an employer who fails to make comparable contributions to the HSAs of its employees during a calendar year.

The regulations are proposed to apply to employer contributions made on or after the first day of the first calendar year after the final regulations are published in the Federal Register. However, the IRS said taxpayers may rely on regulations that provide guidance on employer comparable contributions to HSAs with respect to employer contributions made on or after January 1, 2007, and before the effective date of final regulations.

Comments should be submitted to the IRS by October 13 by one of the methods described in the proposal.