The IRS has issued proposed regulations, providing guidance on how employer can make comparable contributions to their employees’ HSAs when an employee has not established an HSA by December 31. The rules also address the issue of the employer’s ability to accelerate contributions for select employees.
The proposed changes are intended to amend the Final Comparability Rules issued on July 31, 2006. The changes made were to Q/A 14, 15 and 16 under section 54.4980G-4.
Q14. Does an employer fail to satisfy the comparability rules for a calendar year if the employer fails to make contributions with respect to eligible employees because the employee has not established an HSA or because the employer does not know that the employee has established an HSA?
A14. An employer will not fail to satisfy the comparability rules for a calendar year merely because the employer fails to make contributions with respect to eligible employees because the employee has not established an HSA or because the employer does not know that the employee has established an HAS, if
- The employer provides timely (between no earlier than 90 days before the first HSA employer contribution and no later than January 15 of the following calendar year) written notice to all such eligible employees that it will make contributions by the last day of February of the following calendar year if the establish and notify the employer that they have established an HSA and
- The employer contributes to the HSA comparable amounts (taking into account each month the employee was a comparable participating employee) plus reasonable interest.
Q15. For any calendar year may an employer accelerate part or all of its contributions for the entire year to the HSAs of employees who have incurred, during the calendar year, qualified medical expenses exceeding the employer’s cumulative HSA contributions at that time?
A15. Yes, for any calendar year, an employer may accelerate part or all of its contributions for the entire year. If an employer accelerates contributions, all accelerated contributions must be available throughout the calendar year on an equal and uniform basis to all eligible employees. Employers must establish reasonable and uniform methods and requirements for accelerated contributions and the determination of medical expenses.Satisfying comparability: An employer that accelerates contributions will not fail to satisfy the comparability rules because employees who incur qualifying medical expenses exceeding the employer’s cumulative HSA contributions at that time have received more contributions in a given period than comparable employee who do not incur such expenses, provided that all comparable employees receive the same amount or same percentage for the calendar year.
Prior guidance had addressed the acceleration of HSA contributions made through a cafeteria plan for employees whose medical expenses exceeded their contributions, now the same opportunity outside of a cafeteria plan exists.
Q16. What is the effective date for the rules in Q&A 14 and 15?
A16. After the date the final regulations are published in the Federal Register, however, taxpayers may rely on these proposed regulations until the issuance of final regulations. Alternately, an employer may continue to rely on the last sentence of Q&A 6(a) of section 54.4980G-4 of the proposed regulations published on 8/26/05 which provides that an employer is not required to make comparable contributions for a calendar year to an employee’s HSA if the employee has not established an HSA by December 31st of the calendar year.
For the entire IRS document click on the link below:
http://edocket.access.gpo.gov/2007/pdf/E7-10529.pdf
