Finance News & Insights

IRS offers new guidance on correcting HSA deduction errors

You know it’s a great one-two punch for containing healthcare costs: Pair a high deductible health plan (HDHP) with a health savings account (HSA). These days more and more employees are signing on, which means more contributions for your payroll team to handle.

So what happens if they make a mistake with an HSA contribution? Of course, Payroll prides itself on its collective precision, but they’re only human. And errors can creep in … sometimes even for reasons out of their control.

Which is why a recently released Chief Counsel letter is such good news.

It outlines a whole series of possible contribution mistakes where your company can recoup the cash. Here’s what you need to know:

Tell your team not to sweat these

In the past IRS had identified two circumstances under which Payroll can recoup HSA contributions made in error:

  • if they exceeded the maximum annual limit, and
  • if the employee wasn’t eligible to participate in the first place.

But this latest Chief Counsel letter offers you several other common scenarios you might find yourself in.

Make sure Payroll realizes – you can also likely recoup the contribution outright in these seven instances, too:

  1. deductions are higher than the employee specified
  2. contributions went to the wrong employee
  3. a payroll administrator (in-house or third party) enters an incorrect amount for the deduction
  4. duplicate payroll files are transmitted, giving an employee a double HSA contribution
  5. an employee’s change to a payroll election isn’t processed in time, so the wrong amount is withheld
  6. the amount the employee receives is incorrect due to a calculation error, such as using the wrong number of pay periods to calculate the total deduction for the year, and
  7. a decimal place is moved, causing a too-large contribution.

What you’re working with in 2019

To make sure your team is working with the right numbers for this year, here’s a refresher on the current HAS and HDHP limits for 2019, according to Revenue Procedure 2018-30:

  • The maximum HSA contribution for an individual with self-only HDHP coverage: $3,500 (up $50).
  • The maximum HSA contribution for family HDHP coverage: $7,000 ($100 over the current $6,900).
  • The maximum amount for an HDHP out of pocket for self-only coverage (including deductibles, co-pays and co-insurance – but not premiums): $6,750 (up $100).
  • The max out-of-pocket limit for an HDHP participant with a family plan: $13,500 (up $100).
  • The minimum deductible HDHP coverage holds steady: $1,350 for self-only and $2,700 for family coverage.
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