More information on HSAs released by IRS and DOL
Health Savings Accounts (HSAs) are still in the infancy
stage and therefore seeing a lot of attention from the press, Department of
Labor (DOL) and the Internal Revenue Service (IRS). Since inception in December
2003, the IRS has released clarifications and assistance to increase the
understanding and value of HSAs.
On January 12, 2005, the IRS released Notice 2005-8,
which provides guidance on a partnership's contribution to a partner's HSA and
an S Corporation's contributions to a two percent shareholder-employee's HSA.
Generally, employer contributions to an HSA, on behalf of an
employee, is not considered taxable income and would not be subject to
withholding for federal income taxes or subject to FICA, or FUTA. Since
partners generally are not treated as employees for payroll tax purposes and
two percent shareholder-employees of S Corporations are treated like partners
in determining the tax consequences of employee fringe benefits, special rules
apply.
The IRS describes the special rules in detail and provides
examples of their application with this most recent release. In addition, it
clarifies that partner or shareholder contributions for an eligible individual
would be treated the same as an eligible individual making an HSA contribution
on their own behalf.
Notice 2005-8 has different requirements depending on the
type of ownership and relationship in connection to the entity. Questions relating to this guidance should
be addressed with a tax professional supporting the individual or the entity.
An advisory opinion from the U.S. Department of Labor (DOL)
was released on December 22, 2004 providing information concerning whether cash
contributions, offered by an HSA trustee or custodian as an incentive to
establish an HSA, is allowable. The
opinion determined that in accordance with IRS Notice 2004-50, Q&A 28, it
states "any person may make contributions to an HSA on behalf of an eligible
individual." Therefore, if a company or a bank would provide a cash
contribution for a participant starting an HSA, it would be allowable.
With more than three million people slated for enrollment in
account-based Consumer Driven Health Care plans in 2005, HSAs paired with
qualified high deductible health plans will continue to be a hot topic among
U.S. employers. Infinisource will continue to remain abreast of changes and
clarifications regarding HSAs.
In addition, Infinisource leads the way with an innovative
solution for HSAs. Infinisource partners with the Alliance Benefit Group to
offer an innovative HSA solution. Most
HSAs on the market funnel account contributions into standard bank accounts
with nominal interest rates. Infinisource HSAs use The Charles Schwab Trust
Company to house the accounts, making it possible for participants to select
from mutual fund options that build their HSA with market driven earnings.
When employers incorporate the Infinisource
HSA into their plan offering, they do more than just provide
employees with an HSA that supports Consumer Driven Health Care
(CDHC). The Infinisource HSA is
a full featured spending and savings account with limited cash requirements
and automatic roll over into market driven mutual fund investment elections. In
addition, the Infinisource HSA may be offered under a cafeteria plan to save
tax dollars for both the employer and employees. For more information on individual or group HSAs, call our office
at 800-779-6384 or email solutions@infinisource.net.
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