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April 16, 2019
On December 28, 2018, the IRS issued Information Letter Number 2018-0033 (https://www.irs.gov/pub/irs-wd/18-0033.pdf), which provides clarification about the situations in which an employer may attempt to recoup a mistaken contribution to an employee’s Health Savings Account (HSA). Specifically, the letter provides additional examples of HSA contributions, resulting from administrative or processing errors that an employer may try to recoup.
In general, employer contributions to an employee’s HSA are nonforfeitable, except in limited circumstances:
The nonforfeitability rule, along with the two exceptions above, was discussed in Q/A-23 and Q/A-24 in IRS Notice 2008-59 (located at https://www.irs.gov/pub/irs-drop/n-08-59.pdf). However, the IRS indicated in 20151 that the situations outlined in IRS Notice 2008-59 were not exhaustive, and that an employer may request a return of mistaken contributions if there is clear, documentary evidence of an administrative or process error. IRS Information Letter Number 2018-0033 confirms this stance.
The information letter provides several examples of situations that would be considered “administrative process errors”:
In issuing IRS Information Letter 2018-0033, the IRS is confirming its stance that an employer may attempt to recoup its contributions in an expanded set of circumstances. Provided that the employer can provide clear, documentary evidence that a contribution was made as the result of an administrative or processing error, it may attempt to recoup its contributions in order to put the employee and employer in the same position they would have been in if the error had not occurred. This is true even if there was neither a mistake about an individual’s HSA-eligibility nor any contribution in excess of the individual’s annual maximum.
This IRS Information Letter provides helpful information describing the IRS’s viewpoint on the nonforfeitability rule, confirming the view that it expressed previously. Note that an HSA trustee or custodian is not obligated to return an employer’s contributions. If an employer is unable to recoup its erroneous contributions, it should make appropriate adjustments to the affected employee’s W-2 to include the contributed amounts in the employee’s gross wages and income.
As always, should you have any questions, please contact your Parker, Smith & Feek Benefits Team. For additional employee benefit compliance news and information visit our Healthcare Reform Explained website.
The views and opinions expressed within are those of the author(s) and do not necessarily reflect the official policy or position of Parker, Smith & Feek. While every effort has been taken in compiling this information to ensure that its contents are totally accurate, neither the publisher nor the author can accept liability for any inaccuracies or changed circumstances of any information herein or for the consequences of any reliance placed upon it.