FSA and HRA terminations to fund HSAs
(1) In general
(1)In general#
A plan shall not fail to be treated as a health flexible spending arrangement or health reimbursement arrangement under this section or section 105 merely because such plan provides for a qualified HSA distribution.
(2)Qualified HSA distribution#
The term “qualified HSA distribution” means a distribution from a health flexible spending arrangement or health reimbursement arrangement to the extent that such distribution—
(A) does not exceed the lesser of the balance in such arrangement on September 21, 2006 , or as of the date of such distribution, and
(B) is contributed by the employer directly to the health savings account of the employee before January 1, 2012 .
Such term shall not include more than 1 distribution with respect to any arrangement.
(2)(A)#
does not exceed the lesser of the balance in such arrangement on September 21, 2006 , or as of the date of such distribution, and
(2)(B)#
is contributed by the employer directly to the health savings account of the employee before January 1, 2012 .
(3)Additional tax for failure to maintain high deductible health plan coverage#
(A) In general If, at any time during the testing period, the employee is not an eligible individual, then the amount of the qualified HSA distribution— (i) shall be includible in the gross income of the employee for the taxable year in which occurs the first month in the testing period for which such employee is not an eligible individual, and (ii) the tax imposed by this chapter for such taxable year on the employee shall be increased by 10 percent of the amount which is so includible.
(B) Exception for disability or death Clauses (i) and (ii) of subparagraph (A) shall not apply if the employee ceases to be an eligible individual by reason of the death of the employee or the employee becoming disabled (within the meaning of section 72(m)(7)).
(3)(A)In general#
If, at any time during the testing period, the employee is not an eligible individual, then the amount of the qualified HSA distribution—
(i) shall be includible in the gross income of the employee for the taxable year in which occurs the first month in the testing period for which such employee is not an eligible individual, and
(ii) the tax imposed by this chapter for such taxable year on the employee shall be increased by 10 percent of the amount which is so includible.
(3)(A)(i)#
shall be includible in the gross income of the employee for the taxable year in which occurs the first month in the testing period for which such employee is not an eligible individual, and
(4)Definitions and special rules#
For purposes of this subsection—
(A) Testing period The term “testing period” means the period beginning with the month in which the qualified HSA distribution is contributed to the health savings account and ending on the last day of the 12th month following such month.
(B) Eligible individual The term “eligible individual” has the meaning given such term by section 223(c)(1).
(C) Treatment as rollover contribution A qualified HSA distribution shall be treated as a rollover contribution described in section 223(f)(5).
(4)(A)Testing period#
The term “testing period” means the period beginning with the month in which the qualified HSA distribution is contributed to the health savings account and ending on the last day of the 12th month following such month.
(4)(B)Eligible individual#
The term “eligible individual” has the meaning given such term by section 223(c)(1).
(4)(C)Treatment as rollover contribution#
(5)Tax treatment relating to distributions#
For purposes of this title—
(A) In general A qualified HSA distribution shall be treated as a payment described in subsection (d).
(B) Comparability excise tax (i) In general Except as provided in clause (ii), section 4980G shall not apply to qualified HSA distributions. (ii) Failure to offer to all employees In the case of a qualified HSA distribution to any employee, the failure to offer such distribution to any eligible individual covered under a high deductible health plan of the employer shall (notwithstanding section 4980G(d)) be treated for purposes of section 4980G as a failure to meet the requirements of section 4980G(b).
(5)(A)In general#
A qualified HSA distribution shall be treated as a payment described in subsection (d).
(5)(B)Comparability excise tax#
(i) In general Except as provided in clause (ii), section 4980G shall not apply to qualified HSA distributions.
(ii) Failure to offer to all employees In the case of a qualified HSA distribution to any employee, the failure to offer such distribution to any eligible individual covered under a high deductible health plan of the employer shall (notwithstanding section 4980G(d)) be treated for purposes of section 4980G as a failure to meet the requirements of section 4980G(b).