Exception to the comparable employer contribution requirement for Health Savings Accounts

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December 16, 2014 by Tony Novak

This post is meant to introduce a potential tax and benefits planning strategy for small businesses looking for a work-around to some of the restrictions of the Affordable Care Act.


Some small business employers want to avoid sponsoring a group health insurance plan but want to help employees with health care costs. In many or most situations an employee with modest income is better off obtaining insurance through the individual Health Insurance Marketplace especially if they qualify for a premium tax credit subsidy. The Internal Revenue Service and the Department of Labor have issued a number of regulations designed to prevent employers from pursuing this strategy. Employees can still but insurance on the individual exchange but employers should not have any involvement with the enrollment transaction or premium payment or reimbursement of the cost of individual health insurance.

The basic law

When employers make deposits to an employee’s HSA account normally the employer is required to make the same or comparable deposits for all similarly situated employees. However, there is one exception to that law.

The exception

The Tax Relief and Health Care Act of 2006 allows employers to make larger HSA contributions for a nonhighly compensated employee than for a highly compensated employee.

The Affordable Care Act does not change this exception.

Who is highly compensated

A highly compensated employee for 2014 is an employee who meets either of the following tests.

– The employee was a 5% owner at any time during the year or the preceding year.

– The employee received more than $115,000 in pay for the preceding year.

Why is this important?

Employers who wish to avoid a group health insurance plan but want to help employees with health care expenses can do so by funding only the Health Savings Account. Current law prohibits employers from paying for any of the cost of individual health insurance.

Other points to consider:

– Neither IRS nor DOL have issued comments specifically related to employer contributions of HSAs other than to refer to existing law.

– This post does not consider the issue of whether an employer contribution to a health Savings Account is an employer-sponsored health plan

– This law and this post does not consider the issue of discriminatory contributions between two or more non-highly compensated employees.

Source: IRS Publication 15 for 2014

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