The IRS's current information letter

The recently published IRS information letter says that the 2009 IRS notice was not intended to be an exclusive correction-eligible list. As a result, the new IRS letter provides examples of situations where corrective action may be allowed. These situations are:

The amount withheld and deposited in an employee's HSA for a pay period is larger than the amount shown on the employee's election. However, it is not clear how this works if the employee elected an annual amount. In that case, it appears the employer needs to wait until the end of the year to recoup the money.
The employer makes an unintentional employer contribution because an incorrect spreadsheet is accessed or because employees with similar names are confused with each other.
The HSA contribution is incorrectly entered by a payroll administrator (whether in-house or third-party).
The employee receives as a duplicate HSA contribution because duplicate payroll files are transmitted.
A change in employee payroll elections is not processed timely so that amounts withheld and contributed are greater than (or less than) the employee elected. As a practical matter, however, it is unclear why the employer would need to request money back for amounts that were less than the employee's actual election. The employer should just make up the difference in future payroll contributions.
The HSA contribution amount is calculated incorrectly, such as where an employee elects a total amount for the year that is allocated by the system over an incorrect number of pay periods. This situation is especially "ripe" for occurrence when an employer's payroll system calculates the HSA contribution based on 24 payroll periods when the employee actually has 26. This could occur if the employer has different groups of employees who use different payroll periods and the system does not properly distinguish between groups of employees.
An employee receives a greater-than-allowed employer contribution due to a misplaced decimal.

Potential traps for the unwary

While the newly published IRS letter is certainly welcome news, employers should beware of the following:

Instant Insights /

Employers may have more leeway in correcting HSA mistakes

More From HR Executive

Related Stories

Recommended For You