Congress Passes Tax Bill With HSA Provisions

December 11, 2006 – One of the final actions of the 109th Congress, which adjourned last weekend, was a Senate vote to pass H.R. 6111, the Tax Relief and Health Care Act of 2006.  There is no expectation that President Bush will not sign the bill, though a date for signing is not confirmed. In addition to a number of tax break extensions, the legislation also contains significant changes to health savings accounts (HSAs).

The HSA provisions in this legislation generally take effect for 2007 tax year, with the exception noted below. These provisions will

  • allow full statutory HSA contributions regardless of the deductible level of the qualifying high deductible health plan coverage,
  • allow a one-time rollover of IRA assets to an HSA, limited to the annual HSA contribution amount,
  • allow rollover of certain health flexible spending (cafeteria) plan or health reimbursement arrangement (HRA) assets to HSAs through 2012 (effective on the date of enactment),
  • allow persons who become HSA-eligible after the beginning of a calendar year to make full-year HSA contributions,
  • modify the HSA cost-of-living adjustment (COLA) formula, and
  • modify employer comparable contribution requirements to allow employers to consider highly compensated employees (HCEs) as a group separate from nonhighly compensated employees (nonHCEs) for contribution purposes.

In addition, the legislation provides that contributions will continue to be allowed for Archer medical savings accounts (MSAs) through 2007.