House Tax Package Could Allow for FSA-to-HSA Rollovers

What it means: Financial professionals who have clients with HSAs need to pay close attention to The One, Big, Beautiful Bill.

The backdrop: The House Ways and Means Committee is "marking up" — debating and, possibly, amending on voting on — the package now. The committee is streaming the markup live online and will post a video recording when the meeting is over.

The text of the bill is available here.

The committee has also posted a detailed section-by-section summary.

The fate of the package is unclear. Some House Republicans have argued that Congress should stop cramming ideas into huge, "must pass" budget and spending bills and ought to consider proposals one at a time, in ordinary bills.

Maya MacGuineas, president of the Committee for a Responsible Federal Budget, is not a fan.

"The sheer number of expensive and unpaid for new tax breaks in this bill, all with various phaseouts and complex rules, is a tax accountant's dream and a budgetary nightmare," MacGuineas said in a statement about the package.

Whatever happens to the package, some provisions could move ahead in whatever tax or budget legislation does get through Congress, and other provisions could pass as stand-alone bills.

The HSA account provisions: Each of the sections in the House Ways and Means package has a number.

The HSA provisions are in sections 110204 through 110213.

The HSA rollover proposal, in section 110210, would help clients with cash stranded in employer-sponsored HRAs or FSAs.

The new tax package would give an employer the discretion to let a participant roll the unused balance in a terminated HRA or FSA into an HSA.

The rollover size would be capped at the annual FSA contribution limit, which is $3,300 this year.

Here's a look at what the other HSA sections would do:

◆ Section 110204 would let people who are eligible for Medicare Part A hospitalization coverage but who have a high-deductible health plan continue to contribute to HSAs. Today, they can't contribute to HSAs.

◆ Section 110205 would let HSA owners use $150 in HSA distributions per month for an individual membership in a membership-based direct primary care practice and $300 per month for a family membership. Today, people who join direct primary practices cannot contribute to HSAs.

◆ Section 110206 would let people who buy bare-bones "bronze level" and catastrophic health major medical insurance coverage combine that coverage with HSAs. Today, owners of that type of coverage cannot combine it with HSAs, because the out-of-pocket maximum costs associated with those policies are too high for the policies to meet the current statutory requirements for HSA-compatible coverage.

◆ Section 110207 would let workers who have access to employer-sponsored on-site health care clinics contribute to HSAs.

◆ Section 110208 would let workers use HSA money to pay for fitness facility dues. The cap would be $500 for an individual and $1,000 for a family.

◆ Section 110209 would let two spouses in a couple who are both 55 or older add up to $1,000 in extra "catch-up" contributions per year to the same HSA.

◆ Section 110211 would allow for HSA-based time travel: A client who opens an HSA could use the HSA cash to pay bills incurred as long as 60 days before the HSA was created.

◆ Section 110212 would improve harmony in some marriages involving spouses with different ideas about health accounts, by letting the spouse of someone who is contributing to an FSA contribute to an HSA.

◆ Section 110213 would double the maximum HSA contribution for individuals who make less than $75,000 per year and couples that earn less than $150,000 per year. That means the limit would be $8,600 for an individual and $17,100 for a family, up from $4,300 for an individual and $8,550 for a family today. The contribution limits would also increase for higher-income individuals, but the size of the increase would phase out for higher-income people.

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