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IRS Issues Proposed Regulations on HSA Comparability and Group Health Plan Excise Tax Reporting

    Client Alerts
  • July 18, 2008

The Internal Revenue Service (“IRS”) continued its flurry of HSA guidance this week issuing proposed regulations that set forth guidance on certain changes to the HSA comparability rules made under the Tax Relief and Health Care Act of 2006. Among other things, the proposed regulations address:

  • a special comparability rule allowing employers to make larger contributions to the HSAs of non-highly compensated employees with comparable coverage during a period;
  • the “full-contribution rule” allowing, but not requiring, maximum annual HSA contributions to be made for employees who become HSA-eligible individuals mid-year and remain eligible on December 1 of that plan year; and
  • a special comparability rule for HSA distributions, if allowed by the employer.

In addition, the proposed regulations make clear that those liable for excise taxes under Internal Revenue Code Sections 4980B (relating to COBRA), 4980D (relating to certain group health plan requirements, including HIPAA portability), 4980E (relating to Archer MSA comparability), and 4980G (relating to HSA comparable contributions) are required to file a return using IRS Form 8928 (“Return of Certain Excise Taxes Under Chapter 43 of the Internal Revenue Code”).  At present, the IRS has not released Form 8928.  The excise tax due under these Code Sections would be paid at the time of the applicable filing deadline:

  • If employers and third-parties (such as third-party administrators or insurers) are subject to Code Sections 4980B and 4980D excise taxes, such amounts are due on or before the due date for filing the taxpayer’s federal income tax return (without regard to any extension);
  • If multi-employer or specified multiple employer health plans are subject to Code Sections 4980B and 4980D excise taxes, such amounts are due on or before the last day of the seventh month after the end of the plan year; and
  • If employers are subject to Code Sections 4980E and 4980G excise taxes, such amounts are due on or before April 15th following the calendar year in which the noncomparable contributions are made.

The proposed regulations on HSA employer contributions would apply to employer contributions made on or after the first day of the first calendar year after the final regulations are published.  However, the proposed regulations may be relied on for employer contributions made on or after January 1, 2007 and before this effective date.  The excise tax provisions of the proposed regulations would be effective for years beginning after the date the final regulations are published.