Employer Comparable Contributions to Health Savings Accounts Under Section 4980G, and Requirement of Return for Filing of the Excise Tax Under Section 4980B, 4980D, 4980E or 4980G, 40793-40799 [E8-16175]

Agencies

• Internal Revenue Service
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 73, Number 137 (Wednesday, July 16, 2008)]
[Proposed Rules]
[Pages 40793-40799]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-16175]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 54

[REG-120476-07]
RIN 1545-BG71


Employer Comparable Contributions to Health Savings Accounts 
Under Section 4980G, and Requirement of Return for Filing of the Excise 
Tax Under Section 4980B, 4980D, 4980E or 4980G

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking and notice of public hearing.

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SUMMARY: This document contains proposed regulations providing guidance 
on employer comparable contributions to Health Savings Accounts (HSAs) 
under section 4980G of the Internal Revenue Code (Code) as amended by 
sections 302, 305 and 306 of the Tax Relief and Health Care Act of 2006 
(the Act). The proposed regulations also provide guidance relating to 
the requirement of a return to accompany payment of the excise tax 
under section 4980B, 4980D, 4980E, or 4980G of the Code and the time 
for filing that return. These proposed regulations would affect 
employers that contribute to employees' HSAs and Archer MSAs, employers 
or employee organizations that sponsor a group health plan, and certain 
third parties such as insurance companies or HMOs or third-party 
administrators who are responsible for providing benefits under the 
plan. This document also provides notice of a public hearing on these 
proposed regulations.

DATES: Written or electronic comments must be received by October 14, 
2008. Outlines of topics to be discussed at the public hearing 
scheduled for October 30, 2008, at 10 a.m., must be received by October 
13, 2008.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-120476-07), Internal 
Revenue Service, room 5203, POB 7604, Ben Franklin Station, Washington, 
DC 20044. Submissions may be hand-delivered Monday through Friday 
between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-120476-07), 
Courier's Desk, Internal Revenue Service, 1111 Constitution Avenue, 
NW., Washington, DC. Alternatively, taxpayers may submit comments 
electronically via the Federal eRulemaking Portal at https://
www.regulations.gov (IRS REG-120476-07). The public hearing will be 
held in

[[Page 40794]]

room 2116, Internal Revenue Building, 1111 Constitution Avenue, NW., 
Washington, DC.

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations as 
they relate to section 4980E or 4980G, Mireille Khoury at (202) 622-
6080; concerning the proposed regulations as they relate to section 
4980B or 4980D, Russ Weinheimer at (202) 622-6080; concerning 
submissions of comments, the hearing, and/or to be placed on the 
building access list to attend the hearing, Richard Hurst at (202) 622-
7180 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

    The collections of information contained in this notice of proposed 
rulemaking have been submitted to the Office of Management and Budget 
for review in accordance with the Paperwork Reduction Act of 1995 (44 
U.S.C. 3507(d)). Comments on the collections of information should be 
sent to the Office of Management and Budget, Attn: Desk Officer for the 
Department of the Treasury, Office of Information and Regulatory 
Affairs, Washington, DC 20503, with copies to the Internal Revenue 
Service, Attn: IRS Reports Clearance Officer, SE:W:CAR:MP:T:T:S 
Washington, DC 20224. Comments on the collection of information should 
be received by September 15, 2008.
    Comments are specifically requested concerning:
    Whether the proposed collections of information are necessary for 
the proper performance of the functions of the IRS, including whether 
the information will have practical utility;
    The accuracy of the estimated burden associated with the proposed 
collection of information;
    How the quality, utility, and clarity of the information to be 
collected may be enhanced;
    How the burden of complying with the proposed collection of 
information may be minimized, including through the application of 
automated collection techniques or other forms of information 
technology; and
    Estimates of capital or start-up costs and costs of operation, 
maintenance, and purchase of services to provide information.
    The collections of information in these proposed regulations are in 
Q & A-11 in Sec.  4980B-2, Q & A-1 in Sec.  4980D-1, Q & A-1 in Sec.  
4980E-1, and Q & A-5 in Sec.  4980G-1. These collections of information 
result from the requirement to file a return for the payment of the 
excise tax under section 4980B, 4980D, 4980E, or 4980G of the Code. The 
likely respondents are employers that contribute to employees' HSAs and 
Archer MSAs, employers or employee organizations that sponsor a group 
health plan, and certain third parties such as insurance companies or 
HMOs or third-party administrators who are responsible for providing 
benefits under the plan.
    Estimated total annual reporting burden: 2,500 hours.
    The estimated annual burden per respondent is 30 minutes.
    Estimated number of respondents: 5,000
    The estimated frequency of responses per respondent is occasional, 
less than once per year.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless it displays a valid 
control number assigned by the Office of Management and Budget.
    Books or records relating to a collection of information must be 
retained as long as their contents may become material in the 
administration of any internal revenue law. Generally, tax returns and 
tax return information are confidential, as required by 26 U.S.C. 6103.

Background

    This document contains proposed Pension Excise Tax Regulations (26 
CFR part 54) under section 4980G of the Code, as amended by Sections 
302 and 305 of the Tax Relief and Health Care Act of 2006 (the Act), 
under paragraph (d) of section 4980G of the Code, as enacted by section 
306 of the Act, and under Section 4980E of the Code.
    Section 1201 of the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003 (Modernization Act), Public Law 108-173 (117 
Stat. 2066, 2003), added section 223 to the Code to permit eligible 
individuals to establish HSAs for taxable years beginning after 
December 31, 2003. Section 4980G was also added to the Code by the 
Modernization Act. Section 4980G(a) imposes an excise tax on the 
failure of an employer to make comparable contributions to the HSAs of 
its employees for a calendar year. Section 4980G(b) provides that rules 
and requirements similar to section 4980E (the comparability rules for 
Archer Medical Savings Accounts (Archer MSAs)) apply for purposes of 
section 4980G. Section 4980E(b) imposes an excise tax equal to 35% of 
the aggregate amount contributed by an employer to the Archer MSAs of 
employees during the calendar year if an employer fails to make 
comparable contributions to the Archer MSAs of its employees in a 
calendar year. Therefore, if the employer fails to make comparable 
contributions to the HSAs of its employees during a calendar year, an 
excise tax equal to 35% of the aggregate amount contributed by the 
employer to the HSAs of its employees during that calendar year is 
imposed on the employer. See sections 4980G(a) and (b) and 4980E(b). 
See also Notice 2004-2 (2004-2 IRB 269), Q & A-32. On July 31, 2006, 
final regulations on comparability were published in the Federal 
Register, 72 FR 30501 (2007-26 IRB 1495), TD 9277. In addition, on 
April 17, 2008, final regulations were published in the Federal 
Register, 73 FR 20794 (2008-20 IRB 975), providing guidance on employer 
comparable contributions to HSAs in instances where an employee has not 
established an HSA by December 31st and in instances where an employer 
accelerates contributions for the calendar year for employees who have 
incurred qualified medical expenses. See Sec.  601.601(d)(2).
    This document also contains proposed Pension Excise Tax Regulations 
(26 CFR part 54) under sections 4980B and 4980D of the Code. Under 
section 4980B of the Code, group health plans maintained by an employer 
with 20 or more employees must comply with continuation coverage 
requirements. If a plan does not satisfy these requirements, an excise 
tax is imposed of $100 per day per affected beneficiary. Final 
regulations under section 4980B have been published, including 
provisions concerning the excise tax, but no return filing requirement 
has previously been imposed. See Sec.  54.4980B-2, Q & A-9 and Q & A-
10. Moreover, under chapter 100 of the Code, group health plans must 
comply with various requirements, including limitations on preexisting 
condition exclusions, certification of creditable coverage, special 
enrollments, prohibitions against discrimination based on a health 
factor, parity in the annual and lifetime dollar limits placed on 
mental health benefits with those placed on medical/surgical benefits, 
and minimum hospital lengths of stay in connection with childbirth. If 
a plan does not satisfy any of these requirements under chapter 100, 
section 4980D imposes an excise tax of $100 per day per affected 
individual. Regulations interpreting the substantive requirements of 
chapter 100 have previously been published, but no regulations have 
been published concerning the excise tax under section 4980D.

[[Page 40795]]

Explanation of Provisions

Special Rule for Contributions to Nonhighly Compensated Employees

    New paragraph (d) of section 4980G provides an exception to the 
comparability rules that allows, but does not require, employers to 
make larger contributions to the HSAs of nonhighly compensated 
employees than the employer makes to the HSAs of highly compensated 
employees. These proposed regulations interpret that requirement. 
Specifically, the proposed regulations, in Sec.  54.4980G-4, provide 
that employer contributions to the HSAs of nonhighly compensated 
employees may be larger than employer contributions to the HSAs of 
highly compensated employees with comparable coverage during a period. 
Conversely, employer contributions to the HSAs of highly compensated 
employees may not exceed employer contributions to the HSAs of 
nonhighly compensated employees with comparable coverage during a 
period.
    The comparability rules still apply with respect to contributions 
to the HSAs of all nonhighly compensated employees who are comparable 
participating employees (eligible individuals who are in the same 
category of employees with the same category of high deductible health 
plan (HDHP) coverage) and an employer must make comparable 
contributions to the HSA of each nonhighly compensated employee who is 
a comparable participating employee during the calendar year. 
Similarly, the comparability rules still apply with respect to 
contributions to the HSAs of all highly compensated employees who are 
comparable participating employees and an employer must make comparable 
contributions to the HSA of each highly compensated employee who is a 
comparable participating employee during the calendar year. 
Collectively bargained employees are disregarded for purposes of 
section 4980G, as are HSA contributions made through a cafeteria plan.
    For purposes of Sec.  4980G(d), highly compensated employee is 
defined under section 414(q) and includes any employee who was (1) a 
five-percent owner at any time during the year or the preceding year; 
or (2) for the preceding year, (A) had compensation from the employer 
in excess of $105,000 (for 2008, indexed for inflation) and (B) if 
elected by the employer, was in the group consisting of the top 20 
percent of employees when ranked based on compensation. Nonhighly 
compensated employees are employees that are not highly compensated 
employees.

Maximum HSA Contribution Permitted for Employees Who Become Eligible 
Individuals Mid-Year

    Section 305 of the Act provides that individuals who are eligible 
individuals during the last month of the taxable year (that is, who, in 
the case of calendar year taxpayers, are eligible individuals on 
December 1 of the year) may make or have made on their behalf the 
maximum annual HSA contribution based on their HDHP coverage (self only 
or family) on that date. A portion of the contribution is included in 
income and subject to an additional 10 percent tax if the individual 
fails to remain an eligible individual for 12 months after the last 
month of the taxable year. See section 223(b)(8). Section 54.4980G-6 of 
the proposed regulations provides that the employer can contribute up 
to this maximum contribution on behalf of all employees who are 
eligible individuals during the last month of the taxable year, 
including employees who become eligible individuals after January 1st 
of the calendar year and eligible individuals who are hired after 
January 1st of the calendar year (both such classes of individuals are 
hereinafter referred to as ``mid-year eligible individuals''). An 
employer who makes the maximum calendar year HSA contribution, or who 
contributes more than a pro-rata amount, on behalf of employees who are 
mid-year eligible individuals will not fail to satisfy comparability 
merely because some employees will have received more contributions on 
a monthly basis than employees who worked the entire calendar year.
    Employers are not required to make these greater than pro-rata 
contributions and may instead pro-rate contributions based on the 
number of months that an individual was both employed by the employer 
and an eligible individual. However, if an employer contributes more 
than the monthly pro-rata amount for the calendar year to the HSA of 
any employee who is a mid-year eligible individual, the employer must 
then contribute, on an equal and uniform basis, a greater than pro-rata 
amount to the HSAs of all comparable participating employees who are 
mid-year eligible individuals. Likewise, if the employer contributes 
the maximum annual contribution amount for the calendar year to the HSA 
of any employee who is a mid-year eligible individual, the employer 
must contribute that same amount to the HSAs of all comparable 
participating employees who are mid-year eligible individuals.

Special Comparability Rules for Qualified HSA Distributions

    Section 302(a) of the Act provides for qualified HSA distributions. 
See section 106(e) and Notice 2007-22 (2007-10 IRB 670). See Sec.  
601.601(d)(2). A qualified HSA distribution is a direct distribution of 
an amount from a health flexible spending arrangement (health FSA) or a 
health reimbursement arrangement (HRA) to an HSA. The distribution must 
not exceed the lesser of the balance in the health FSA or HRA on 
September 21, 2006, or as of the date of the distribution. Section 
54.4980G-7 of the proposed regulations would provide that if an 
employer offers qualified HSA distributions to any employee who is an 
eligible individual covered under any HDHP, the employer must offer 
qualified HSA distributions to all employees who are eligible 
individuals covered under any HDHP. However, an employer that offers 
qualified HSA distributions only to employees who are eligible 
individuals covered under the employer's HDHP is not required to offer 
qualified HSA distributions to employees who are eligible individuals 
but are not covered under the employer's HDHP.

Requirement of Return and Time for Filing of the Excise Tax Under 
Section 4980B, 4980D, 4980E or 4980G

    The regulations provide that persons who are liable for the excise 
tax under section 4980B, 4980D, 4980E, or 4980G are required to file a 
return on Form 8928, ``Return of Certain Excise Taxes Under Chapter 43 
of the Internal Revenue Code.'' The excise tax under section 4980B, 
4980D, 4980E or 4980G must be paid at the time prescribed for filing of 
the excise tax return (without extensions). With respect to the excise 
tax under section 4980B or 4980D for employers and third parties such 
as insurers or third party administrators, the return is due on or 
before the due date for filing the person's federal income tax return. 
An extension to file the person's income tax return does not extend the 
date for filing Form 8928. With respect to the excise tax under section 
4980B or 4980D for multiemployer or specified multiple employer health 
plans, the return is due on or before the last day of the seventh month 
after the end of the plan year. Finally, with respect to the excise tax 
under section 4980E or 4980G for noncomparable contributions, the 
return is due on or before the 15th day of the fourth month following 
the calendar year in which the noncomparable contributions were made.

[[Page 40796]]

Proposed Effective/Applicability Date

    The sections of these regulations that provide guidance on employer 
comparable contributions to HSAs under section 4980G are proposed to 
apply to employer contributions made on or after the first day of the 
first calendar year after the final regulations are published in the 
Federal Register. However, taxpayers may rely on these regulations for 
guidance with respect to employer contributions made on or after 
January 1, 2007, and before the effective date of final regulations.
    The sections of these regulations that provide guidance relating to 
the excise tax under section 4980B, 4980D, 4980E and 4980G are proposed 
to be effective for calendar years (or plan years, where applicable) 
beginning after the date the final regulations are published in the 
Federal Register.

Special Analyses

    It has been determined that these regulations are not a significant 
regulatory action as defined in Executive Order 12866. Therefore, a 
regulatory assessment is not required. It also has been determined that 
section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) 
does not apply to these regulations. It is hereby certified that the 
collection of information in these regulations will not have a 
significant economic impact on a substantial number of small entities. 
This certification is based on the fact, as previously noted, the 
estimated burden associated with the information collection averages 
thirty minutes per respondent and the estimated number of respondents 
is 5000. Moreover, the burden imposed under the collection of 
information in these regulations arises only if there has been a 
failure that triggers liability for the excise tax under section 4980B, 
4980D, 4980E, or 4980G of the Code. Therefore, a Regulatory Flexibility 
Analysis under the Regulatory Flexibility Act (5 U.S.C. chapter 6) is 
not required. Pursuant to section 7805(f) of the Code, this regulation 
has been submitted to the Chief Counsel for Advocacy of the Small 
Business Administration for comment on its impact on small business.

Comments and Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any written comments (a signed original 
and eight (8) copies) or electronic comments that are submitted timely 
to the IRS. The IRS and the Treasury Department request comments on the 
clarity of the proposed regulations and how they can be made easier to 
understand. All comments will be available for public inspection and 
copying.
    The public hearing has been scheduled for October 30, 2008, 
beginning at 10 a.m. in room 2116, Internal Revenue Building, 1111 
Constitution Avenue, NW., Washington, DC. Due to building security 
procedures, visitors must enter at the Constitution Avenue entrance. In 
addition, all visitors must present photo identification to enter the 
building. Because of access restrictions, visitors will not be admitted 
beyond the immediate entrance area more than 30 minutes before the 
hearing starts. For information about having your name placed on the 
building access list to attend the hearing, see the FOR FURTHER 
INFORMATION CONTACT section of this preamble.
    The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who 
wish to present oral comments at the hearing must submit written or 
electronic comments by October 14, 2008, and submit an outline of the 
topics to be discussed and the time to be devoted to each topic (a 
signed original and eight (8) copies) by October 13, 2008. A period of 
10 minutes will be allocated to each person for making comments. An 
agenda showing the scheduling of the speakers will be prepared after 
the deadline for receiving comments has passed. Copies of the agenda 
will be available free of charge at the hearing.

Drafting Information

    The principal author of these proposed regulations is Mireille 
Khoury, Office of Division Counsel/Associate Chief Counsel (Tax Exempt 
and Government Entities), Internal Revenue Service. However, personnel 
from other offices of the IRS and Treasury Department participated in 
their development.

List of Subjects in 26 CFR Part 54

    Excise taxes, Pensions, Reporting and recordkeeping requirements.

Proposed Amendment to the Regulations

    Accordingly, 26 CFR part 54 is proposed to be amended as follows:

PART 54--PENSION EXCISE TAXES

    Paragraph 1. The authority citation for part 54 is amended by 
adding entries to the table to read in part as follows:

    Authority: 26 U.S.C. 7805 * * *
    Section 54.4980G-6 also issued under 26 U.S.C. 4980G. Section 
54.4980G-7 also issued under 26 U.S.C. 4980G. * * *

    Par. 2. Section 54.4980B-0 is amended by adding a new Q-11 to Sec.  
54.4980B-2 in the list of questions to read as follows:


Sec.  54.4980B-0  Table of contents.

* * * * *

List of Questions

* * * * *


Sec.  54.4980B-2  Plans that must comply.

* * * * *
    Q-11: If a person is liable for the excise tax under section 4980B, 
what form must the person file and what is the due date for the filing 
and payment of the excise tax?
* * * * *
    Par. 3. Section 54.4980B-2 is amended by adding a new Q & A-11 to 
read as follows:


Sec.  54.4980B-2  Plans that must comply.

* * * * *
    Q-11: If a person is liable for the excise tax under section 4980B, 
what form must the person file and what is the due date for the filing 
and payment of the excise tax?
    A-11: (a) In general. Any person who is liable for the excise tax 
under section 4980B must report this tax by filing Form 8928, ``Return 
of Certain Excise Taxes Under Chapter 43 of the Internal Revenue 
Code'', and the tax must be paid at the time prescribed for filing such 
return (without extensions). The return must include the information 
required by Form 8928 and the instructions issued with respect to it.
    (b) Due date for filing of return by employers or other persons 
responsible for benefits under a group health plan. If the person 
liable for the excise tax is an employer or other person responsible 
for providing or administering benefits under a group health plan (such 
as an insurer or a third party administrator), the return must be filed 
on or before the due date for filing the person's income tax return and 
must reflect the portion of the noncompliance period for each failure 
under section 4980B that falls during the person's taxable year. An 
extension to file the person's income tax return does not extend the 
date for filing Form 8928.
    (c) Due date for filing of return by multiemployer plans. If the 
person liable for the excise tax is a multiemployer plan, the return 
must be filed on or before the last day of the seventh month following 
the end of the plan's plan year. The filing of Form 8928 by a plan must 
reflect the portion of the noncompliance period for each failure under 
section 4980B that falls during the plan's plan year.

[[Page 40797]]

    (d) Effective/applicability date. In the case of an employer or 
other person mentioned in paragraph (b) of this Q & A-11, the rules in 
this Q & A-11 are effective for taxable years beginning after the date 
the final regulations are published in the Federal Register. In the 
case of a plan mentioned in paragraph (c) of this Q & A-11, the rules 
in this Q & A-11 are effective for plan years beginning after the date 
the final regulations are published in the Federal Register.
    Par. 4. Section 54.4980D-1 is added to read as follows:


Sec.  54.4980D-1  Requirement of return and time for filing of the 
excise tax under section 4980D.

    Q-1: If a person is liable for the excise tax under section 4980D, 
what form must the person file and what is the due date for the filing 
and payment of the excise tax?
    A-1: (a) In general. Any person who is liable for the excise tax 
under section 4980D must report this tax by filing Form 8928, ``Return 
of Certain Excise Taxes Under Chapter 43 of the Internal Revenue 
Code'', and the tax must be paid at the time prescribed for filing such 
return (without extensions). The return must include the information 
required by Form 8928 and the instructions issued with respect to it.
    (b) Due date for filing of return by employers. If the person 
liable for the excise tax is an employer, the return must be filed on 
or before the due date for filing the employer's income tax return and 
must reflect the portion of the noncompliance period for each failure 
under chapter 100 that falls during the employer's taxable year. An 
extension to file the employer's income tax return does not extend the 
date for filing Form 8928.
    (c) Due date for filing of return by multiemployer plans or 
multiple employer health plans. If the person liable for the excise tax 
is a multiemployer plan or a specified multiple employer health plan, 
the return must be filed on or before the last day of the seventh month 
following the end of the plan's plan year. The filing of Form 8928 by a 
plan must reflect the portion of the noncompliance period for each 
failure under chapter 100 that falls during the plan's plan year.
    (d) Effective/applicability date. In the case of an employer or 
other person mentioned in paragraph (b) of this Q & A-1, the rules in 
this Q & A-1 are effective for taxable years beginning after the date 
the final regulations are published in the Federal Register. In the 
case of a plan mentioned in paragraph (c) of this Q & A-1, the rules in 
this Q & A-1 are effective for plan years beginning after the date the 
final regulations are published in the Federal Register.
    Par. 5. Section 54.4980E-1 is added to read as follows:


Sec.  54.4980E-1  Requirement of return and time for filing of the 
excise tax under section 4980E.

    Q-1: If a person is liable for the excise tax under section 4980E, 
what form must the person file and what is the due date for the filing 
and payment of the excise tax?
    A-1: (a) In general. Any employer who is liable for the excise tax 
under section 4980E must report this tax by filing Form 8928, ``Return 
of Certain Excise Taxes Under Chapter 43 of the Internal Revenue 
Code'', on or before the 15th day of the fourth month following the 
calendar year in which the noncomparable contributions were made. The 
tax must be paid at the time prescribed for filing such return (without 
extensions), and the return must include the information required by 
Form 8928 and the instructions issued with respect to it.
    (b) Effective/applicability date. The rules in this Q & A-1 are 
effective for plan years beginning after the date the final regulations 
are published in the Federal Register.
    Par. 6. Section 54.4980G-1 is amended by:
    1. Revising the last sentence in A-1 and adding a new sentence at 
the end of paragraph (a) in A-2.
    2. Adding a new Q & A-5.
    The revisions and addition read as follows:


Sec.  54.4980G-1  Failure of employer to make comparable health savings 
account contributions.

* * * * *
    A-1: * * * But see Q & A-6 in Sec.  54.4980G-3 for treatment of 
collectively bargained employees and Q & A-1 in Sec.  54.4980G-6 for 
the rules allowing larger comparable contributions to nonhighly 
compensated employees.
* * * * *
    A-2: (a) * * * See also Sec.  54.4980G-6 for the rules allowing 
larger comparable contributions to nonhighly compensated employees.
* * * * *
    Q-5: If a person is liable for the excise tax under section 4980G, 
what form must the person file and what is the due date for the filing 
and payment of the excise tax?
    A-5: (a) In general. Any employer who is liable for the excise tax 
under section 4980E must report this tax by filing Form 8928, ``Return 
of Certain Excise Taxes Under Chapter 43 of the Internal Revenue 
Code'', on or before the 15th day of the fourth month following the 
calendar year in which the noncomparable contributions were made. The 
tax must be paid at the time prescribed for filing such return (without 
extensions), and the return must include the information required by 
Form 8928 and the instructions issued with respect to it. See Q & A-4 
of Sec.  54.4980G-1 for the rules on computation of the excise tax 
under section 4980G.
    (b) Effective/applicability date. The rules in this Q & A-5 are 
effective for plan years beginning after the date the final regulations 
are published in the Federal Register.
    Par. 7. Section 54.4980G-3 is amended by:
    1. Revising the introductory text in paragraph (a) of A-5.
    2. Adding a new sentence at the end of paragraph (c) of A-5 and 
paragraph (a) of A-9.
    The revision and additions read as follows:


Sec.  54.4980G-3  Failure of employer to make comparable health savings 
account contributions.

* * * * *
    A-5: (a) Categories. The categories of employees for comparability 
testing are as follows (but see Q & A-6 of this section for the 
treatment of collectively bargained employees and Q & A-1 of Sec.  
54.4980G-6 for a special rule for contributions made to the HSAs of 
nonhighly compensated employees)--
* * * * *
    (c) * * * But see Sec.  54.4980G-6 for a special rule for 
contributions made to the HSAs of nonhighly compensated employees.
* * * * *
    A-9: (a) * * * See Sec.  54.4980G-6 for a special rule for 
contributions made to the HSAs of nonhighly compensated employees.
* * * * *
    Par. 8. Section 54.4980G-4 is amended by:
    1. Adding a new sentence at the end of paragraph (a) of A-1.
    2. Adding paragraphs (h) and (i) to A-2.
    The additions read as follows:


Sec.  54.4980G-4  Calculating comparable contributions.

* * * * *
    A-1: (a) * * * But see Q & A-1 of Sec.  54.4980G-6 for a special 
rule for contributions made to the HSAs of nonhighly compensated 
employees.
* * * * *

[[Page 40798]]

    A-2: * * *
* * * * *
    (h) Maximum contribution permitted for all employees who are 
eligible individuals during the last month of the taxable year. An 
employer may contribute up to the maximum annual contribution amount 
for the calendar year (based on the employees' HDHP coverage) to the 
HSAs of all employees who are eligible individuals during the last 
month of the taxable year, including employees who worked for the 
employer for less than the entire calendar year and employees who 
became eligible individuals after January 1st of the calendar year. For 
example, such contribution may be made on behalf of an eligible 
individual who is hired after January 1st or an employee who becomes an 
eligible individual after January 1st. Employers are not required to 
provide more than a pro-rata contribution based on the number of months 
that an individual was an eligible individual and employed by the 
employer during the year. However, if an employer contributes more than 
a pro-rata amount for the calendar year to the HSA of any eligible 
individual who is hired after January 1st of the calendar year or any 
employee who becomes an eligible individual any time after January 1st 
of the calendar year, the employer must contribute that same amount on 
an equal and uniform basis to the HSAs of all comparable participating 
employees (as defined in Q & A-1 in Sec.  54.4980G-1) who are hired or 
become eligible individuals after January 1st of the calendar year. 
Likewise, if an employer contributes the maximum annual contribution 
amount for the calendar year to the HSA of any eligible individual who 
is hired after January 1st of the calendar year or any employee who 
becomes an eligible individual any time after January 1st of the 
calendar year, the employer must contribute the maximum annual 
contribution amount on an equal and uniform basis to the HSAs of all 
comparable participating employees (as defined in Q & A-1 in Sec.  
54.4980G-1) who are hired or become eligible individuals after January 
1st of the calendar year. An employer who makes the maximum calendar 
year contribution or more than a pro-rata contribution to the HSAs of 
employees who become eligible individuals after the first day of the 
calendar year or eligible individuals who are hired after the first day 
of the calendar year will not fail to satisfy comparability merely 
because some employees will have received more contributions on a 
monthly basis than employees who worked the entire calendar year.
    (i) Examples. The following examples illustrate the rules in 
paragraph (h) in this Q & A-2. In the following examples, no 
contributions are made through a section 125 cafeteria plan and none of 
the employees are covered by a collective bargaining agreement.

    Example 1. On January 1, 2009, Employer Q contributes $1,000 for 
the calendar year to the HSAs of employees who are eligible 
individuals with family HDHP coverage. In mid-March of the same 
year, Employer Q hires Employee A, an eligible individual with 
family HDHP coverage. On April 1, 2009, Employer Q contributes 
$1,000 to the HSA of Employee A. In September of the same year, 
Employee B becomes an eligible individual with family HDHP coverage. 
On October 1, 2009, Employer G contributes $1,000 to the HSA of 
Employee B. Employer Q does not make any other contributions for the 
2009 calendar year. Employer Q's contributions satisfy the 
comparability rules.
    Example 2. For the 2009 calendar year, Employer R only has two 
employees, Employee C and Employee D. Employee C, an eligible 
individual with family HDHP coverage, works for Employer R for the 
entire calendar year. Employee D, an eligible individual with family 
HDHP coverage works for Employer R from July 1st through December 
31st. Employer R contributes $1,200 for the calendar year to the HSA 
of Employee C and $600 to the HSA of Employee D. Employer R does not 
make any other contributions for the 2009 calendar year. Employer 
R's contributions satisfy the comparability rules.
* * * * *
    Par. 9. Section 54.4980G-6 is added to read as follows:


Sec.  54.4980G-6  Special rule for contributions made to the HSAs of 
nonhighly compensated employees.

    Q-1: May an employer make larger contributions to the HSAs of 
nonhighly compensated employees than to the HSAs of highly compensated 
employees?
    A-1: Yes. Employers may make larger HSA contributions for nonhighly 
compensated employees who are comparable participating employees than 
for highly compensated employees who are comparable participating 
employees. See Q & A-1 in Sec.  54.4980G-1 for the definition of 
comparable participating employee. For purposes of this section, highly 
compensated employee is defined under section 414(q). Nonhighly 
compensated employees are employees that are not highly compensated 
employees. The comparability rules continue to apply with respect to 
contributions to the HSAs of all nonhighly compensated employees. 
Employers must make comparable contributions for the calendar year to 
the HSA of each nonhighly compensated employee who is a comparable 
participating employee.
    Q-2: May an employer make larger contributions to the HSAs of 
highly compensated employees than to the HSAs of nonhighly compensated 
employees?
    A-2: (a) In general. No. Employer contributions to HSAs for highly 
compensated employees who are comparable participating employees may 
not be larger than employer HSA contributions for nonhighly compensated 
employees who are comparable participating employees. The comparability 
rules continue to apply with respect to contributions to the HSAs of 
all highly compensated employees. Employers must make comparable 
contributions for the calendar year to the HSA of each highly 
compensated comparable participating employee. See Q & A-1 in Sec.  
54.4980G-1 for the definition of comparable participating employee.
    (b) Examples. The following examples illustrate the rules in Q & A-
1 and Q & A-2 of this section. No contributions are made through a 
section 125 cafeteria plan and none of the employees in the following 
examples are covered by a collective bargaining agreement. All of the 
employees in the following examples have the same HDHP deductible for 
the same category of coverage.

    Example 1. In 2009, Employer A contributes $1,000 for the 
calendar year to the HSA of each full-time nonhighly compensated 
employee who is an eligible individual with self-only HDHP coverage. 
Employer A makes no contribution to the HSA of any full-time highly 
compensated employee who is an eligible individual with self-only 
HDHP coverage. Employer A's HSA contributions for calendar year 2009 
satisfy the comparability rules.
    Example 2. In 2009, Employer B contributes $2,000 for the 
calendar year to the HSA of each full-time nonhighly compensated 
employee who is an eligible individual with self-only HDHP coverage. 
Employer B also contributes $1,000 for the calendar year to the HSA 
of each full-time highly compensated employee who is an eligible 
individual with self-only HDHP coverage. Employer B's HSA 
contributions for calendar year 2009 satisfy the comparability 
rules.
    Example 3. In 2009, Employer C contributes $1,000 for the 
calendar year to the HSA of each full-time nonhighly compensated 
employee who is an eligible individual with self-only HDHP coverage. 
Employer C contributes $2,000 for the calendar year to the HSA of 
each full-time highly compensated employee who is an eligible 
individual with self-only HDHP coverage. Employer C's HSA 
contributions for calendar year 2009 do not satisfy the 
comparability rules.

[[Page 40799]]

    Example 4. In 2009, Employer D contributes $1,000 for the 
calendar year to the HSA of each full-time nonhighly compensated 
employee who is an eligible individual with self-only HDHP coverage. 
Employer D also contributes $1,000 to the HSA of each full-time 
highly compensated employee who is an eligible individual with self-
only HDHP coverage. In addition, the employer contributes an 
additional $500 to the HSA of each nonhighly compensated employee 
who participates in a wellness program. The nonhighly compensated 
employees did not receive comparable contributions, and, therefore, 
Employer D's HSA contributions for calendar year 2009 do not satisfy 
the comparability rules.
    Example 5. In 2009, Employer E contributes $1,000 for the 
calendar year to the HSA of each full-time non-management nonhighly 
compensated employee who is an eligible individual with family HDHP 
coverage. Employer E also contributes $500 for the calendar year to 
the HSA of each full-time management nonhighly compensated employee 
who is an eligible individual with family HDHP coverage. The 
nonhighly compensated employees did not receive comparable 
contributions, and, therefore, Employer E's HSA contributions for 
calendar year 2009 do not satisfy the comparability rules.

    Q-3: May an employer make larger HSA contributions for employees 
with self plus two HDHP coverage than employees with self plus one HDHP 
coverage even if the employees with self plus two are all highly 
compensated employees and the employees with self plus one are all 
nonhighly compensated employees?
    A-3: (a) Yes. Q & A-1 in Sec.  54.4980G-4 provides that an 
employer's contribution with respect to the self plus two category of 
HDHP coverage may not be less than the contribution with respect to the 
self plus one category and the contribution with respect to the self 
plus three or more category may not be less than the contribution with 
respect to the self plus two category. Therefore, the comparability 
rules are not violated if an employer makes a larger HSA contribution 
for the self plus two category of HDHP coverage than to self plus one 
coverage, even if the employees with self plus two coverage are all 
highly compensated employees and the employees with self plus one 
coverage are all nonhighly compensated employees. Likewise, the 
comparability rules are not violated if an employer makes a larger HSA 
contribution for the self plus three category of HDHP coverage than to 
self plus two coverage, even if the employees with self plus three 
coverage are all highly compensated employees and the employees with 
self plus two coverage are all nonhighly compensated employees.
    (b) Example. The following example illustrates the rules in 
paragraph (a) of this Q & A-3. In the following examples, no 
contributions are made through a section 125 cafeteria plan and none of 
the employees are covered by a collective bargaining agreement.

    Example. In 2009, Employer F contributes $1,000 for the calendar 
year to the HSA of each full-time employee who is an eligible 
individual with self plus one HDHP coverage. Employer F contributes 
$1,500 for the calendar year to the HSA of each employee who is an 
eligible individual with self plus two HDHP coverage. The deductible 
for both the self plus one HDHP and the self plus two HDHP is 
$2,000. Employee A, an eligible individual, is a nonhighly 
compensated employee with self plus one coverage. Employee B, an 
eligible individual, is a highly compensated employee with self plus 
two coverage. For the 2009 calendar year, Employer F contributes 
$1,000 for to Employee A's HSA and $1,500 to Employee B's HSA. 
Employer F's HSA contributions satisfy the comparability rules.

    Par. 10. Section 54.4980G-7 is added to read as follows:


Sec.  54.4980G-7  Special comparability rules for qualified HSA 
distributions contributed to HSAs on or after December 20, 2006 and 
before January 1, 2012.

    Q-1: How do the comparability rules of section 4980G apply to 
qualified HSA distributions under section 106(e)(2)?
    A-1: The comparability rules of section 4980G do not apply to 
amounts contributed to employee HSAs through qualified HSA 
distributions. However, in order to satisfy the comparability rules, if 
an employer offers qualified HSA distributions, as defined in section 
106(e)(2), to any employee who is an eligible individual covered under 
any HDHP, the employer must offer qualified HSA distributions to all 
employees who are eligible individuals covered under any HDHP. However, 
if an employer offers qualified HSA distributions only to employees who 
are eligible individuals covered under the employer's HDHP, the 
employer is not required to offer qualified HSA distributions to 
employees who are eligible individuals but are not covered under the 
employer's HDHP.

Linda E. Stiff,
Deputy Commissioner for Services and Enforcement.
 [FR Doc. E8-16175 Filed 7-15-08; 8:45 am]
BILLING CODE 4830-01-P