Employers Take Note, Part Five: Additional Taxes On HSAs, Limits On FSAs

As the House and Senate leadership begin to discuss their differing health care reform proposals, Health Reform Talk continues a series examining health reform provisions that will affect employer-sponsored health plans and would take effect soon after enactment of any legislation. This series will look at features of the legislation already passed in the House (H.R. 3962) and in the Senate (H.R. 3590). These are features likely to survive in final health reform legislation and which will directly affect employers. Today, an increase in taxes on HSA distributions and a contribution limitation on flexible spending arrangements (FSAs) are discussed.

Additional Taxes On HSAs and MSAs

H.R. 3590: Sec. 9004 would increase the existing excise tax on non-medical distributions from HSAs and MSAs from 10% to 20%

This provision is effective for distributions made after Dec. 31, 2010

H.R. 3962: Sec. 533 also would increase the tax on HSAs (but not MSAs) to 20%.

The House provision is effective for taxable years beginning after Dec. 31, 2010

Limitation On Health Flexible Spending Arrangements Under Cafeteria Plans

H.R. 3590: Sec. 9005 would limit the annual salary reductions in a health flexible spending arrangement (FSA) to $2,500.

This provision is effective for years beginning after Dec. 31, 2010

H.R. 3962: Sec. 532 also would limit FSA salary reductions to $2,500 annually. The House provision, however, takes effect in taxable years after Dec. 31, 2012, and is adjusted for inflation thereafter.