Agenda - Council - 02/08/2021 - Laserfiche WebLink

Home

403(b) plan for all of its employees, regardless of whether they perform services for an educational organization. FED-7. Amended Internal Revenue Code Regarding Health Savings Account Eligibility and Medicare Enrollment Issue: Section 223(b)(7) of the Internal Revenue Code provides that the monthly limitation on contributions to a health savings account (HSA) is zero starting with the first month in which an individual is entitled to Medicare benefits. A person becomes entitled to Medicare benefits when their Medicare coverage becomes effective. In many cases, Medicare coverage is effective on a retroactive basis. Specifically, when an individual is required to submit an application for Medicare coverage, the Medicare coverage will be effective retroactively up to six months before the month in which the application is filed (depending on the date on which the individual first become eligible for Medicare coverage) as described in 42 CFR §406.6(d). The IRS has indicated that the monthly limitation on HSA contributions included in Section 223(b)(7) applies during any 129 retroactive period of Medicare coverage. This rule is confusing to employees, employers, and benefit administrators and may lead to unintended and unexpected tax consequences for employees and employers who may not be aware at the time an HSA contribution is made that the monthly limitation for that month will be zero if the employee applies for Medicare within the following six months and the coverage is effective retroactively under this rule. Furthermore, if an employer provides contributions to an HSA as part of its benefit package, then the rule may limit the benefits an active employee can receive from their employer. Response: Congress should amend Section 223(b)(7) of the Internal Revenue Code to provide that the limitation on contributions to a health savings account for any month with respect to any individual shall be zero for each month beginning with the later of (i) the first month in which such individual is entitled to benefits under title XVIII of the Social Security Act or (ii) the month in which such individual submits a valid application for benefits under title XVIII of the Social Security Act.