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Regulation and Compliance > Federal Regulation > IRS

IRS Tells HSA Sponsors How To Divvy Funds

By Allison Bell

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The Internal Revenue Service wants to keep employers from using the new health savings account programs to favor some employees over others.[@@]

The IRS has proposed regulations that would set guidelines requiring employers that contribute to HSAs to make comparable contributions for all workers in a given class of employees.

The HSA program lets individuals who buy high-deductible health coverage fund routine health care costs by deducting contributions to HSAs and excluding HSA distributions used to pay for health care from taxable income.

Employers can deduct HSA contributions from their own taxable income, but the HSA law imposes some restrictions on employer-sponsored HSA programs.

In the proposed regulations, the IRS says an employer must make “comparable contributions” to all members in a class of employees who join the employer’s HSA program. To make “comparable contributions,” the employer must contribute either the same amount of cash or the same percentage of the deductible to each HSA program participant’s HSA, Barbara Pie, an IRS tax exempt entities specialist, writes in a preamble to the proposed regulations.

The IRS is proposing a plain vanilla approach to employee classes.

An employer could put full-time workers, part-time workers and former workers in separate classes, and it could set different contribution rates for employees with individual coverage and with family coverage.

Because the IRS does not consider sole proprietors or partners at a company to be company employees, companies do not have to apply the comparability rules to sole proprietor or partner HSA contributions, Pie writes.

But the employer could not distinguish between union employees and non-union employees, or between new employees and established employees, Pie writes.

The employer could not tie HSA contributions to employee participation in wellness programs, “because if all comparable participating employees do not elect to participate in all the programs, they will not receive comparable contributions to their HSAs,” Pie writes.

Pie notes that a guidance issued in 2004 already states that employers cannot match employees’ HSA contributions. At an employer with an HSA contribution matching program, “if all comparable participating employees do not contribute the same amount to their HSAs, they will not receive comparable [employer] contributions to their HSAs,” Pie writes.

The IRS has posted a link to a copy of the proposed regulations on the Web site of its parent, the U.S. Treasury Department, at //www.treasury.gov/press/releases/reports/reg_13864704_.pdf

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