['Employee Benefits']
['Health Savings Accounts (HSAs)']
05/17/2022
Copyright 2024 J. J. Keller & Associate, Inc. For re-use options please contact copyright@jjkeller.com or call 800-558-5011.
...
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part54
[TD 9457]
RIN 1545-BG71
Employer Comparable Contributions to Health Savings Accounts Under Section 4980G, and Requirement of Return for Filing of the Excise Tax Under Section 4980B, 4980D, 4980E or 4980G
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document contains final regulations providing guidance on employer comparable contributions to Health Savings Accounts (HSAs) under section 4980G of the Internal Revenue Code (Code) as amended by sections 302, 305 and 306 of the Tax Relief and Health Care Act of 2006 (the Act). The final regulations also provide guidance relating to the manner and method of reporting and paying the excise tax under sections 4980B, 4980D, 4980E, and 4980G of the Code. These final regulations would affect employers that contribute to employees' HSAs and Archer MSAs, employers or employee organizations that sponsor a group health plan, and certain third parties such as insurance companies or HMOs or third-party administrators who are responsible for providing benefits under the plan.
DATES:Effective date. These regulations are effective on September 8, 2009.
Applicability date. The sections of these regulations that provide guidance on employer comparable contributions to HSAs under section 4980G apply to employer contributions made on or after January 1, 2010. The sections of these regulations that provide guidance relating to the excise tax under sections 4980B, 4980D, 4980E and 4980G apply to any Form 8928 that is due on or after January 1, 2010.
FOR FURTHER INFORMATION CONTACT:
Concerning the final regulations as they relate to sections 4980E or 4980G, Mireille Khoury at (202) 622-6080; and concerning the final regulations as they relate to section 4980B or 4980D, Russ Weinheimer at (202) 622-6080 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information contained in these regulations has been reviewed and approved by the Office of Management and Budget in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)), under control number 1545-2146. The collection of information in these final regulations is in §54.6011-2. The collection of information results from the requirement to file a return for the payment of the excise tax under section 4980B, 4980D, 4980E, or 4980G of the Code. The likely respondents are employers that contribute to employees' HSAs and Archer MSAs, employers or employee organizations that sponsor a group health plan, and certain third parties such as insurance companies or HMOs or third-party administrators who are responsible for providing benefits under the plan.
An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a valid control number assigned by the Office of Management and Budget. Books or records relating to a collection of information must be retained as long as their contents might become material in the administration of any internal revenue law. Generally, tax returns and tax return information are confidential, as required by 26 U.S.C. 6103.
Background
This document contains final amendments to the Excise Tax Regulations (26 CFR part 54) under section 4980G of the Code, as amended by Sections 302 and 305 of the Tax Relief and Health Care Act of 2006 (the Act), Public Law 109-432, under paragraph (d) of section 4980G of the Code, as enacted by section 306 of the Act, and under Section 4980E of the Code.
Under section 4980G, an excise tax is imposed on an employer that fails to make comparable contributions to the HSAs of its employees. On July 31, 2006, final regulations on comparability were published in the Federal Register, 72 FR 30501 (2007-26 IRB 1495), TD 9277. In addition, on April 17, 2008, final regulations were published in the Federal Register, 73 FR 20794 (2008-20 IRB 975), TD 9393, providing guidance on employer comparable contributions to HSAs in instances where an employee has not established an HSA by December 31st and in instances where an employer accelerates contributions for the calendar year for employees who have incurred qualified medical expenses. See §601.601(d)(2).
This document also contains final amendments to the Excise Tax Regulations (26 CFR part 54) under sections 4980B and 4980D. Under section 4980B, group health plans maintained by an employer with 20 or more employees must comply with continuation coverage requirements. If a plan does not satisfy these requirements, an excise tax is imposed of $100 per day per affected beneficiary. Final regulations under section 4980B have been published, including provisions concerning the excise tax, but no return filing requirement has previously been imposed. See §54.4980B-2, Q&A-9 and Q&A-10. Moreover, under chapter 100 of the Code, group health plans must comply with various requirements, including limitations on preexisting condition exclusions, certification of creditable coverage, special enrollments, prohibitions against discrimination based on a health factor (including genetic information), parity between mental health benefits and medical/ surgical benefits, minimum hospital lengths of stay in connection with childbirth, and continued coverage for post-secondary students with a serious medical condition. If a plan does not satisfy any of these requirements under chapter 100, section 4980D imposes an excise tax of $100 per day per affected individual. Regulations interpreting the substantive requirements of chapter 100 have previously been published, but no regulations have been published concerning the excise tax under section 4980D.
On July 16, 2008, proposed regulations (REG-120476-07) were published in the Federal Register (73 FR 40793) addressing comparable contributions to nonhighly compensated employees. The proposed regulations also provided guidance for employers that offer qualified HSA distributions and for employers that make the maximum annual HSA contribution on behalf of all employees who are eligible individuals on the first day of the last month of the employees' taxable year. Finally, the proposed regulations provided guidance on the requirement of a return to accompany payment of the excise taxes under sections 4980B, 4980D, 4980E, and 4980G and the time for filing that return. These final regulations adopt the provisions of the proposed regulations without substantive revision. The final regulations make certain minor clarifying changes to the rules of the proposed regulations.
Explanation of Provisions and Summary of Comments
Special Rule for Contributions to Nonhighly Compensated Employees
Paragraph (d) of section 4980G provides an exception to the comparability rules that allows, but does not require, employers to make larger contributions to the HSAs of nonhighly compensated employees than the employer makes to the HSAs of highly compensated employees. The final regulations address this exception to comparability in §54.4980G-4 and provide that employer contributions to the HSAs of nonhighly compensated employees may be larger than employer contributions to the HSAs of highly compensated employees with comparable coverage during a period. Conversely, employer contributions to the HSAs of highly compensated employees may not exceed employer contributions to the HSAs of nonhighly compensated employees with comparable coverage during a period.
The comparability rules still apply with respect to contributions to the HSAs of all nonhighly compensated employees who are comparable participating employees (eligible individuals who are in the same category of employees with the same category of high deductible health plan (HDHP) coverage) and an employer must make comparable contributions to the HSA of each nonhighly compensated employee who is a comparable participating employee during the calendar year. Similarly, the comparability rules still apply with respect to contributions to the HSAs of all highly compensated employees who are comparable participating employees and an employer must make comparable contributions to the HSA of each highly compensated employee who is a comparable participating employee during the calendar year. Collectively bargained employees are disregarded for purposes of section 4980G, as are HSA contributions made through a cafeteria plan.
For purposes of section 4980G(d), highly compensated employee is defined under section 414(q) and includes any employee who was (1) a five-percent owner at any time during the year or the preceding year; or (2) for the preceding year, (A) had compensation from the employer in excess of $110,000 (for 2009, indexed for inflation) and (B) if elected by the employer, was in the group consisting of the top 20 percent of employees when ranked based on compensation. Nonhighly compensated employees are employees that are not highly compensated employees.
Maximum HSA Contribution Permitted for Employees Who Become Eligible Individuals Mid-Year
Section 305 of the Act 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. A portion of the contribution is included in income and subject to an additional 10 percent tax if the individual fails to remain an eligible individual for 12 months after the last month of the taxable year. See section 223(b)(8). Section 54.4980G-6 of the final regulations provides that the employer can contribute up to this maximum contribution on behalf of all employees who are eligible individuals on the first day of the last month of the employees' taxable year (December 1 for calendar year taxpayers), including 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 (both such classes of individuals are hereinafter referred to as ''mid-year eligible individuals''). 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.
Employers are not required to make these greater than pro-rata contributions and may instead pro-rate contributions based on the number of months that an individual was both employed by the employer and an eligible individual. However, 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. Likewise, 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.
Special Comparability Rules for Qualified HSA Distributions
Section 302(a) of the Act provides for qualified HSA distributions. See section 106(e) and Notice 2007-22 (2007-10 IRB 670). See §601.601(d)(2). A qualified HSA distribution is a direct distribution of an amount from a health flexible spending arrangement (health FSA) or a health reimbursement arrangement (HRA) to an HSA. The distribution must not exceed the lesser of the balance in the health FSA or HRA on September 21, 2006, or as of the date of the distribution. Section 54.4980G-7 of the final regulations provides that if an employer offers qualified HSA distributions to any employee who is an eligible individual covered under any HDHP, the employer must offer qualified HSA distributions to all employees who are eligible individuals covered under any HDHP. However, an employer that offers qualified HSA distributions only to employees who are eligible individuals covered under the employer's HDHP is not required to offer qualified HSA distributions to employees who are eligible individuals but are not covered under the employer's HDHP.
Reporting and Payment of the Excise Tax Under Section 4980B, 4980D, 4980E or 4980G
The regulations prescribe the manner and method of paying the excise taxes imposed under section 4980B, 4980D, 4980E, or 4980G. The final regulations, like the proposed regulations, provide that these excise taxes must be reported on Form 8928, ''Return of Certain Excise Taxes Under Chapter 43 of the Internal Revenue Code.'' The excise tax under section 4980B, 4980D, 4980E or 4980G must be paid at the time prescribed for filing of the excise tax return (without extensions). With respect to the excise tax under section 4980B or 4980D for employers and third parties such as insurers or third party administrators, the return is due on or before the due date for filing the person's Federal income tax return. An extension to file the person's income tax return does not extend the date for filing Form 8928. With respect to the excise tax under section 4980B or 4980D for multiemployer or specified multiple employer health plans, the return is due on or before the last day of the seventh month after the end of the plan year. Finally, with respect to the excise tax under section 4980E or 4980G for noncomparable contributions, the return is due on or before the 15th day of the fourth month following the calendar year in which the noncomparable contributions were made. The final regulations also provide guidance regarding the place for filing these excise tax returns, the signing of these excise returns, and the time and place for paying the tax shown on such returns.
Two comments were received regarding the reporting and filing of the excise taxes under sections 4980B, 4980D, 4980E, and 4980G. One commentator was concerned that the noncompliance period under section 4980B or 4980D could extend beyond the due date for filing the excise tax return and suggested that the due date be extended to 90 days after the end of the noncompliance period. It is true that the noncompliance period under section 4980B, for example, could extend over four or more taxable years of the person responsible for payment of the tax. Therefore, extending the due date until 90 days after the end of the noncompliance period would in some cases defer the obligation to pay the excise tax for over four years, which would not be in the interest of sound tax administration. As such, the final regulations do not adopt this change.
Another commentator noted that the excise tax might be due before the person responsible for paying it had even discovered that a failure under section 4980B or 4980D had occurred. However, this concern is mitigated by the fact that sections 4980B and 4980D provide that the excise tax does not apply for any period for which the responsible party did not know, or exercising reasonable diligence would not have known, that the failure existed. Also, under sections 4980B and 4980D, the excise tax does not apply if the failure is corrected (that is, the failure is retroactively undone to the extent possible and the affected beneficiary is placed in a financial position as good as the beneficiary would have been had the failure not occurred).
Finally, a commentator also stated that there are some uncertainties about the application of the excise tax rules to various situations that could arise under section 4980B. The commentator suggested that the filing and payment requirement for the excise tax under section 4980B should not apply until additional guidance was issued that addressed these uncertainties. The Treasury Department and the IRS believe that the statutory and regulatory provisions in this area provide appropriate guidance. Therefore, the final regulations do not adopt this comment.
The guidance in the proposed regulations relating to the excise taxes imposed under section 4980B, 4980D, 4980E, or 4980G was contained in Q & A-11 in §4980B-2, Q & A-1 in §4980D-1, Q & A-1 in §4980E-1, and Q & A-5 in §4980G-1. The final regulations provide additional clarifying information relating to the guidance previously provided in these Q &As, and the final regulations also consolidate this guidance by including it under the following sections: §§54.6011-2, 54.6061-1, 54.6071-1, 54.6091-1 and 54.6151-1.
Effective/Applicability Date
The sections of these regulations that provide guidance on employer comparable contributions to HSAs under section 4980G apply to employer contributions made on or after January 1, 2010.
The sections of these regulations that provide guidance relating to the excise tax under sections 4980B, 4980D, 4980E and 4980G apply to any Form 8928 that is due on or after January 1, 2010.
Special Analyses
It has been determined that this Treasury Decision is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations. It is hereby certified that the collection of information in these regulations will not have a significant economic impact on a substantial number of small entities. Therefore, a Regulatory Flexibility Analysis under the Regulatory Flexibility Act (5 U.S.C. chapter 6) is not required. Pursuant to section 7805(f) of the Code, the notice of proposed rulemaking preceding this regulation was submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.
Drafting Information
The principal authors of these final regulations are Mireille Khoury and Russ Weinheimer, Office of Division Counsel/Associate Chief Counsel (Tax Exempt and Government Entities), Internal Revenue Service. However, personnel from other offices of the IRS and Treasury Department participated in their development.
Linda E. Stiff,
Deputy Commissioner for Services and Enforcement.
Approved: August 20, 2009.
Michael Mundaca,
Acting Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. E9-21225 Filed 9-4-09; 8:45 am]
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Copyright 2024 J. J. Keller & Associate, Inc. For re-use options please contact copyright@jjkeller.com or call 800-558-5011.