It just keeps getting better! President Bush’s December signing of The Tax Relief and Healthcare Act of 2006 provides exciting new opportunities for employers and employees beginning January 1, 2007. These changes make HSAs more attractive than ever while they simplify the rules and maximize potential tax savings. The 7 enhancements are:
Increase annual HSA contributions. Now, anyone with a qualified HDHP (High Deductible Health Plan) can contribute the maximum amounts for single or family, which in 2007, the statutory amounts are $2850 for single and $5650 for family. Even if you have a lesser deductible HDHP plan, you can fund your HSA account to the maximum level.
2. Allow full annual HSA contributions mid year. No more pro-rating contributions or the need to set up the program January 1st. One can fully fund their HSA account to the annual limit, regardless of when their plan begins. Penalties may apply if HSA compatible coverage does not continue for 12 months.
One time rollover from FSA or HRA. A one-time rollover from a current FSA and/or HRA. Members must have a health FSA or HRA on 9/21/06, to qualify. This rollover of funds does not count against the annual contribution limit. The maximum contribution is the balance in the FSA or HRA as of 9/21/06, or if less, the balance as of the date of the transfer. Again, penalties will apply if HSA compatible coverage does not continue for 12 months.
Allow a one-time transfer from an IRA to an HSA. A one time irrevo-cable transfer from an IRA to an HSA is allowed. The amount transferred does count towards the maximum HAS contribution for the year, and the amount contributed is not allowed as a deduction. The same penalty rules apply as stated above.
Earlier indexing of cost of living adjustments. HDHP index amounts including minimum deductible, maximum contribution and out-of-pocket maximums will be published in June rather than November.
FSA grace period relief. Participants may now make HSA contributions during the FSA grace period if the FSA balance is $0 or the one-time rollover option is utilized.
7. Allow greater employer contributions for lower-paid employees. Employers may now contribute more to the HSAs of non-highly compensated employees. Highly compensated employees are currently defined as one of the following: a 5% owner during the previous year, an employee whose compensation is greater than $100,000 or an employee in the top 20% of employees ranked by compensation. This provides an exception to the comparability rules and gives employers more options for compensation. It’s always wise to consult your accountant regarding the special transfers and varying contributions options.
These changes are huge, and just make HSA plans more enticing. It’s worth thinking about, and it may be time for you to consider…