Treasury, IRS Clarify Health Savings Accounts

This week the Treasury and the IRS issued Revenue Ruling 2004-45 which clarifies how health Flexible Spending Arrangements (FSAs) and Health Reimbursement Arrangements (HRAs) interact with Health Savings Accounts (HSAs). The guidance provides a number of ways that individuals may have access to benefits from FSAs and HRAs and remain eligible to contribute to an HSA.

“Although the statute does not permit individuals to contribute to an HSA while being covered by general purpose health FSAs and HRAs, the guidance provides significant flexibility to employers in structuring health reimbursements for employees,” stated Greg Jenner, Acting Assistant Secretary for Tax Policy. In particular, the ruling states that eligible individuals (who must be covered by a high deductible health plan (HDHP)) may continue to contribute to an HSA while also covered by the following types of employer-provided plans that reimburse employee medical expenses:

  • Limited purpose FSAs and HRAs that restrict reimbursements to certain permitted benefits such as vision, dental, or preventive care benefits.
  • Suspended HRAs where the employee has elected to forgo health reimbursements for the coverage period.
  • Post-deductible FSAs or HRAs that only provide reimbursements after the minimum annual deductible has been satisfied.
  • Retirement HRAs that only provide reimbursements after an employee retires.

“We believe that the ability of employers to allow employees to temporarily suspend reimbursements from HRAs so they can contribute to an HSA without forfeiting accumulated HRA benefits provides important transitional relief for employers adopting high deductible health plans with HSAs,” said Mr. Jenner.

The guidance also provides that combinations of these arrangements may also be provided without disqualifying an individual from contributing to an HSA. In addition, the ruling clarifies that individuals with coverage by an FSA and an HRA, as well as an HSA, may reimburse expenses through the FSA or HRA prior to taking distributions from the HSA, as long the individual does not seek multiple tax-favored reimbursements for the same expense.


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