IRS Announces Expansion of Situations Permitting Corrections for HSA Contributions

Many businesses choose to set up healthcare to include a health savings account (HSA) for each participating employee. Employees and businesses can then make tax-advantaged contributions to this account. For the most part, once these contributions are made, an employer cannot reclaim the contributions, even if it was made incorrectly. However, the IRS has set apart some situations where corrections to HSA contributions are permitted.

This initially originated in IRS Notice 2008-59 and was then expanded upon by Information Letter 2019-0033 (the “Information Letter”). The notice set out a set of circumstances where an employer could recoup their contributions to an HSA. The Information Letter indicated that the situations listed in the notice were by no means exhaustive and there are other similar situations where corrections are permitted.

All these situations require clear, documented evidence of an administrative or processing error. The goal is to put both business and employee in the position they would be in if the error hadn’t happened. The employer should, of course, retain documentation showing the error and how it was resolved.

“Letter 2018-0033 specifically identifies the following types of errors that would allow such a correction:

  • An amount withheld and deposited in an employee’s HSA for a pay period is greater than the amount shown on the employee’s HSA salary reduction election.
  • An unintended employer contribution to an employee’s HSA is transmitted due to accessing an incorrect spreadsheet, or because employees with similar names are confused for each other.
  • An amount that an employee receives as an HSA contribution is incorrectly entered by a payroll administrator (whether by the employer or a third party) causing the incorrect amount to be withheld and contributed.
  • An employee receives a second HSA contribution due to duplicate payroll file transmissions.
  • An employee receives an incorrect HSA contribution due to a change in employee payroll elections not being processed timely (so that amounts withheld and contributed are greater or less than what the employee elected).
  • An employee receives an incorrect HSA contribution because the amount is calculated incorrectly, such as when an employee elects a total amount for the year that is allocated by a payroll system over an incorrect number of pay periods.
  • An employee receives an incorrect HSA contribution because the decimal position is set incorrectly, resulting in a contribution greater than intended.”

Again, it’s important to remember that this is not designed to be an exhaustive list of situations in which an employer can make corrections to HSA contributions, but rather guidance on the type of administrative or process errors that would result in such corrections being necessary.

Having a team like the experienced benefits counsel at Hall Benefits Law on your side means having someone you can call for clarification when human or data errors occur. We can help confirm what to do when errors get into benefits and financial situations and make sure the problem and solution are clearly documented in case it is ever questioned. Call our Georgia-based team today at 678-439-6236 or visit the Hall Benefits Law website.

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Hall Benefits Law, LLC

HBL offers employers comprehensive legal guidance on benefits in mergers and acquisitions, Employee Stock Ownership Plans (ESOPs), executive compensation, health and welfare benefits, healthcare reform, and retirement plans. We counsel a wide spectrum of clients including small, mid-sized, and large companies, 401(k) investment advisors, health insurance brokers, accountants, attorneys, and HR consultants, just to name a few. HBL is passionate about advising clients, and we are dedicated to our mission: to provide comprehensive, personalized, and practical ERISA and benefits legal solutions that exceed client expectations.

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