NU Online News Service, Dec. 22, 2003, 6:02 p.m. EST – The Internal Revenue Service is asking tax advisors, benefits experts and others to help it come up with a clear, accurate explanation of the health savings account section of the Medicare Prescription Drug, Improvement and Modernization Act of 2003.[@@]
Elizabeth Purcell and Shoshanna Tanner, IRS officials, have published a preliminary version of IRS Notice 2004-2, a notice that will give taxpayers and their advisors basic guidance on how to make use of the HSA provision in the real world.
Purcell and Tanner are asking for comments on the basic guidance, and they also are asking for comments about other, more complicated HSA issues that the IRS might address in the future.
The officials are asking what they should write about the relationship between HSAs, flexible spending accounts and health reimbursement arrangements.
Other topics of interest include “the application of the nondiscrimination rules in [Internal Revenue Code] Section 125 to HSAs offered under a cafeteria plan” and “the corrective procedures in instances where employer contributions exceed the statutory contribution limits,” the officials write.
The HSA section, located near the end of H.R. 1, the bill that created MPDIMA, lets taxpayers who buy certain kinds of high-deductible health insurance policies contribute thousands of dollars each year to personal health accounts.
HSA holders can deduct the contributions from taxable income, and they can spend HSA assets on qualified medical expenses without paying income taxes on the distributions.
Unlike holders of flexible spending accounts, HSA holders can roll over assets at the end of the year. In theory, healthy workers who contribute to HSAs throughout their careers could use the accounts to accumulate tens of thousands of dollars.
Workers also can use HSA distributions to pay long term care insurance premiums or cover the cost of health coverage during periods of unemployment.
The IRS has posted the preview version of Notice 2004-2 at http://www.irs.gov/pub/irs-drop/n-04-2.pdf