Guidance on HSA-comparable contributionsArticle added by Sonya King on October 5, 2009
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Sonya King

Joined: October 01, 2008

The Service has released final regulations concerning employer comparable contributions to health savings accounts (HSAs) in the Special Rule for Contributions to Non-highly Compensated Employees. The Code provides 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 the employer makes to the HSAs of highly compensated employees.

The final regulations address this exception to comparability, reiterating that employer contributions to the HSAs of non-highly compensated employees may be larger than employer contributions to the HSAs of highly compensated employees with comparable coverage during a given period. However, employer contributions to the HSAs of highly compensated employees may not exceed employer contributions to the HSAs of non-highly compensated employees.

Note also that the comparability rules continue to apply with respect to contributions to the HSAs of all non-highly compensated employees and all highly compensated employees. Consequently, employers must still make comparable contributions for the calendar year to the HSA of each (1) non-highly compensated employee and (2) each highly compensated employee who is a comparable participating employee.

The rules in this section are effective for employer contributions made for calendar years beginning on or after January 1, 2010.

Maximum HSA contribution permitted for employees who become eligible individuals mid-year. Section 305 of the Tax Relief and Health Care Act of 2006 (TRHCA 2006) provides that individuals who are eligible individuals on the first day of the last month of the employees' taxable year (December 1 for calendar year taxpayers) may make (or have made on their behalf) the maximum annual HSA contribution based on their HDHP coverage (self only or family) on that date.

The final regulations provide that the employer can contribute up to the maximum contribution on behalf of all employees who are eligible individuals on December 1, including both employees who became eligible individuals after January 1st of the calendar year, and eligible individuals who were hired after January 1st of the calendar year (mid-year eligible individuals).

The Service points out that 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.

Furthermore, the Service continues, employers are not required to make greater than pro-rata contributions, but may instead make pro-rata contributions based on the number of months that an individual was both employed by the employer and an eligible individual. However, the Service cautions, if an employer contributes more than the monthly pro-rata amount for the calendar year to the HSA of any employee who is a mid-year eligible individual, the employer must then contribute (on an equal and uniform basis) a greater than pro-rata amount to the HSAs of all comparable participating employees who are mid-year eligible individuals.

Similarly, if the employer contributes the maximum annual contribution amount for the calendar year to the HSA of any employee who is a mid-year eligible individual, the employer must contribute that same amount to the HSAs of all comparable participating employees who are mid-year eligible individuals.

The rules in this section are effective for employer contributions made for calendar years beginning on or after January 1, 2010.

TRHCA 2006 Sec. 305; IRC Sec. 4980G(d); Treas. Regs. ยงยง54.4980G-4, 54-4980G-6; TD 9457, 74 Fed. Reg. 45994 (9-8-2009).

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