HSAs | Fraser Blog

IRS Announces 2022 Adjustments for HSAs & Excepted-Benefit HRAs

The IRS has released its 2022 annual inflation adjustments for Health Savings Accounts (“HSAs”) as determined under Section 223 of the Internal Revenue Code. Specifically, IRS Revenue Procedure 2021-25 provides the adjusted limits for contributions to a HSA, as well as the high deductible health plan (“HDHP”) minimums and maximums for calendar year 2022.

Additionally, Revenue Procedure 2021-25 sets forth the maximum amount that may be made newly available for excepted-benefit health reimbursement arrangements (“HRAs”) as provided under 26 CFR 54.9831-1(c)(3)(viii).

The 2022 HSA/HDHP limits are as follows:

Annual Contribution Limit
- Single Coverage: $3,650
- Family Coverage: $7,300
HDHP-Minimum Deductible
- Single Coverage: $1,400
- Family Coverage: $2,800
HDHP-Maximum Annual Out-of-Pocket Expenses (including deductibles, co-payments and other amounts, but not including premiums)
- Single Coverage: $7,050
- Family Coverage: $14,100
The catch-up contribution for eligible individuals age 55 or older by year end remains at $1,000.

Plans and related documentation, including employee communications, should be updated to reflect these new limits which are effective for calendar year 2022.

As always, please keep in mind that participation in a health FSA (or any other non-HDHP) will result in HSA ineligibility, unless the health FSA is limited to: (1) limited-scope dental or vision excepted benefits; and/or (2) post-deductible expenses.

The 2022 EBHRA limit is as follows:

The maximum amount that may be made newly available for the plan year for an excepted benefit HRA (“EBHRA) is $1,800. This amount is effective for plan years beginning in 2022 (but it is unchanged since EBHRA’s inception in 2020).

If you have any questions about these products or would like assistance with updating documentation or employee communications, feel free to contact us.

As you are well aware, the law and guidance are rapidly evolving in this area. Please check with your Fraser Trebilcock attorney for the most recent updates.

Fraser Trebilcock is committed to providing you valuable information. Please watch for upcoming alerts on these and other topics.

We have created a response team to the rapidly changing COVID-19 situation and the law and guidance that follows, so we will continue to post any new developments. You can view our COVID-19 Response Page and additional resources by following the link here. In the meantime, if you have any questions, please contact your Fraser Trebilcock attorney.

Elizabeth H. Latchana specializes in employee health and welfare benefits. Recognized for her outstanding legal work, in both 2019 and 2015, Beth was selected as “Lawyer of the Year” in Lansing for Employee Benefits (ERISA) Law by Best Lawyers, and in 2017 as one of the Top 30 “Women in the Law” by Michigan Lawyers Weekly. Contact her for more information on this reminder or other matters at 517.377.0826 or elatchana@fraserlawfirm.com.

Brian T. Gallagher is an attorney at Fraser Trebilcock specializing in ERISA, Employee Benefits, and Deferred and Executive Compensation. He can be reached at (517) 377-0886 or bgallagher@fraserlawfirm.com.

IRS Announces 2021 Increases for HSAs

The IRS has released its 2021 annual inflation adjustments for Health Savings Accounts (HSAs) as determined under Section 223 of the Internal Revenue Code. Specifically, IRS Revenue Procedure 2020-32 provides the adjusted limits for contributions to a Health Savings Account (“HSA”), as well as the high deductible health plan (“HDHP”) minimums and maximums for calendar year 2021.

The 2021 limits are as follows:

Annual Contribution Limit
- Single Coverage: $3,600
- Family Coverage: $7,200
HDHP-Minimum Deductible
- Single Coverage: $1,400
- Family Coverage: $2,800
HDHP-Maximum Annual Out-of-Pocket Expenses (including deductibles, co-payments and other amounts, but not including premiums)
- Single Coverage: $7,000
- Family Coverage: $14,000
The catch-up contribution for eligible individuals age 55 or older by year end remains at $1,000.

Plans and related documentation, including employee communications, should be updated to reflect these new limits for 2021.

This alert serves as a general summary of lengthy and comprehensive new provisions of the Internal Revenue Code. It does not constitute legal guidance. Please contact us with any specific questions.

Client Alert: Additional Time to Contribute to HSAs

In addition to recent guidance allowing Health Savings Accounts (HSAs) to reimburse for over-the-counter medications (see our Client Alert), the Internal Revenue Service (IRS) has issued IRS Notice 2020-23 as well as frequently asked questions (FAQs) which, in part, describe relief for HSA contributions:

Notice 2020-23
FAQs

Specifically, contributions to HSAs may be made up until July 15, 2020. Additionally, if excess contributions had been made in 2019 and were treated as being taxable, individuals can avoid the 6% excise tax if the excess amount (plus income on that amount) is withdrawn by July 15, 2020. This does not apply to contributions that were made via salary reduction or if deductions were taken on the excess amounts. Contributions must be taxable.

The specific questions and answers relating to HSAs are as follows:

Q. Does this relief provide me more time to contribute money to my HSA or Archer MSA for 2019?

A. Yes. Contributions may be made to your HSA or Archer MSA, for a particular year, at any time during the year or by the due date for filing your return for that year. Because the due date for filing Federal income tax returns is now July 15, 2020, under this relief, you may make contributions to your HSA or Archer MSA for 2019 at any time up to July 15, 2020. For more details on HSA or Archer MSA contributions, see Publication 969, Health Savings Accounts and other Tax-Favored Health Plans.

Q. I made an excess contribution to my HSA in 2019. Can I avoid the 6% excise tax if I withdraw the excess amount (and income on the excess amount) by July 15, 2020?

A. Yes, provided that you didn’t make the contributions to the HSA through a salary reduction or similar arrangement with your employer, and you didn’t (or don’t) take a deduction for the excess contribution when you file your tax return. Also, if you file your return by July 15, 2020, and don’t withdraw those excess contributions by that date, you can still avoid the excise tax if you withdraw the excess (and income on the excess amount) by October 15, 2020.

The latter FAQ states that the withdrawal relief does not apply to contributions that were made via salary reduction or if deductions were taken on the excess amounts. This is because the excise taxes are only avoided if excess contributions are timely withdrawn, and only if the contributions are treated as taxable. The FAQ is unclear as to whether there is a blanket exclusion for contributions through salary reduction, or just those which are not taxable.

Timely filing of returns, as well as amended returns, are still required to accomplish the above. Automatic extension are not allowed if returns are not timely filed.

As you are well aware, the law and guidance are rapidly evolving in this area. Please check with your Fraser Trebilcock attorney for the most recent updates.

This alert serves as a general summary, and does not constitute legal guidance. Please contact us with any specific questions.

Client Alert: FSAs, HRAs, and HSAs Can Reimburse Over-the-Counter Medications

One of the many changes brought forth under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) includes allowing pre-tax reimbursement of over-the-counter (“OTC”) medications effective January 1, 2020.

Specifically, the CARES Act amended Internal Revenue Code (the “Code”) sections 223(d) and 106(f) to remove the restriction that reimbursable medications are limited to prescribed drugs and insulin. Additionally, the CARES Act provides that expenses incurred for menstrual care products (as defined in Code section 223(d)(2)(D)) shall be treated as incurred for medical care. Affected reimbursement accounts include health flexible spending accounts (“health FSAs”), health savings accounts (“HSAs”), and health reimbursement accounts (“HRAs”).

This marks another change in course as to how to handle OTC medications. While OTC drugs were previously allowed under the Code, beginning January 1, 2011, the Affordable Care Act limited reimbursable medications to prescriptions and insulin. The CARES Act once again changes that, and while many of the CARES Act provisions include sunset dates, there is no expiration date for OTC reimbursements. With respect to HSAs, this change is effective for amounts paid after December 31, 2019. For health FSAs and HRAs, it is effective for expenses incurred after December 31, 2019.

Most health FSA and HRA plan documents specifically restrict reimbursement to prescription drugs and medications, including insulin. Therefore, if an employer chooses to allow reimbursements of OTC and menstrual care products from health FSAs and HRAs, plan amendments will most likely be required. HSAs are generally not employer sponsored products and, as such, would require no amendments.

While these are permissive changes, employers wanting to share some positive news to employees may want to allow them. Employee communication, as always, is of paramount importance, especially summaries of material modifications for ERISA plans.

This alert serves as a general summary, and does not constitute legal guidance. Please contact us with any specific questions.