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Penalty Set for Violations of HSA Contribution Rule

June 6, 2008
Related Topics: Medical Benefits Law, Benefit Design and Communication, Workforce Planning, Latest News
Employees taking advantage of a 2006 law that allows them to make the maximum annual contributions to health savings accounts will face stiff financial penalties if they don’t meet all the conditions of the law, according to Internal Revenue Service guidance.

IRS Notice 2008-52, released Tuesday, June 3, provides guidance for provisions in a 2006 law intended to increase the appeal of HSAs. The law allows employees to make the maximum annual contribution to an HSA regardless of what point during the year they enrolled in the HSA-linked high-deductible health plan.

Under prior law, the maximum annual contribution to an HSA was prorated to reflect when an employee became eligible for coverage. For example, the HSA contribution for an employee who became covered on December 1 was limited to one-twelfth of the annual maximum.

The 2006 law eliminated the prorating rule.

But the 2006 law also attached strings to the liberalized contribution rule. In order to make the maximum contribution, an employee would have to enroll no later than December 1 of the current year and remain in the arrangement through December 31 of the following year.

The IRS guidance says that if enrollees don’t meet these requirements, the HSA contributions—except those that would have been allowed under the prorating rule—will be added to employees’ taxable income, with a 10 percent penalty tax imposed on that amount.

Filed by Jerry Geisel of Business Insurance, a sister publication of Workforce Management. To comment, e-mail

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