Trust Examination Manual
TAX
RELIEF and HEALTH CARE ACT of 2006
Title
III: Health Savings Accounts
Health
Opportunity Patient Empowerment Act of 2006
SEC.
301. SHORT TITLE.
This
title may be cited as the `Health Opportunity Patient Empowerment
Act of 2006'.
SEC.
302. FSA AND HRA TERMINATIONS TO FUND HSAs.
(a)
In General- Section 106 (relating to contributions by employer to
accident and health plans) is amended by adding at the end the following
new subsection:
`(e) FSA and HRA Terminations to Fund HSAs-
`(1) IN GENERAL- A plan shall not fail to be treated as a health flexible spending
arrangement or health reimbursement arrangement under this section or section
105 merely because such plan provides for a qualified HSA distribution.
`(2) QUALIFIED HSA DISTRIBUTION- The term `qualified HSA distribution' means
a distribution from a health flexible spending arrangement or health reimbursement
arrangement to the extent that such distribution--
`(A) does not exceed the lesser of the balance in such arrangement on September
21, 2006, or as of the date of such distribution, and
`(B) is contributed by the employer directly to the health savings account
of the employee before January 1, 2012.
Such term shall not include more than 1 distribution with respect to any arrangement.
`(3) ADDITIONAL TAX FOR FAILURE TO MAINTAIN HIGH DEDUCTIBLE HEALTH PLAN COVERAGE-
`(A) IN GENERAL- If, at any time during the testing period, the employee is
not an eligible individual, then the amount of the qualified HSA distribution--
`(i) shall be includible in the gross income of the employee for the taxable
year in which occurs the first month in the testing period for which such employee
is not an eligible individual, and
`(ii) the tax imposed by this chapter for such taxable year on the employee
shall be increased by 10 percent of the amount which is so includible.
`(B) EXCEPTION FOR DISABILITY OR DEATH- Clauses (i) and (ii) of subparagraph
(A) shall not apply if the employee ceases to be an eligible individual by
reason of the death of the employee or the employee becoming disabled (within
the meaning of section 72(m)(7)).
`(4) DEFINITIONS AND SPECIAL RULES- For purposes of this subsection--
`(A) TESTING PERIOD- The term `testing period' means the period beginning with
the month in which the qualified HSA distribution is contributed to the health
savings account and ending on the last day of the 12th month following such
month.
`(B) ELIGIBLE INDIVIDUAL- The term `eligible individual' has the meaning given
such term by section 223(c)(1).
`(C) TREATMENT AS ROLLOVER CONTRIBUTION- A qualified HSA distribution shall
be treated as a rollover contribution described in section 223(f)(5).
`(5) TAX TREATMENT RELATING TO DISTRIBUTIONS- For purposes of this title--
`(A) IN GENERAL- A qualified HSA distribution shall be treated as a payment
described in subsection (d).
`(B) COMPARABILITY EXCISE TAX-
`(i) IN GENERAL- Except as provided in clause (ii), section 4980G shall not
apply to qualified HSA distributions.
`(ii) FAILURE TO OFFER TO ALL EMPLOYEES- In the case of a qualified HSA distribution
to any employee, the failure to offer such distribution to any eligible individual
covered under a high deductible health plan of the employer shall (notwithstanding
section 4980G(d)) be treated for purposes of section 4980G as a failure to
meet the requirements of section 4980G(b).'.
(b) Certain FSA Coverage Disregarded
Coverage- Subparagraph (B) of section 223(c)(1) (relating to certain coverage
disregarded) is amended by striking `and' at the end of clause (i), by striking
the period at the end of clause (ii) and inserting `, and', and by inserting
after clause (ii) the following new clause:
`(iii) for taxable years beginning after December 31, 2006, coverage under
a health flexible spending arrangement during any period immediately following
the end of a plan year of such arrangement during which unused benefits or
contributions remaining at the end of such plan year may be paid or reimbursed
to plan participants for qualified benefit expenses incurred during such period
if--
`(I) the balance in such arrangement at the end of such plan year is zero,
or
`(II) the individual is making a qualified
HSA distribution (as defined in section 106(e)) in an amount equal to the remaining
balance in such arrangement as of the end of such plan year, in accordance
with rules prescribed by the Secretary.'.
(c) Application of Section-
(1) SUBSECTION (a)- The amendment made by subsection (a) shall apply to distributions
on or after the date of the enactment of this Act.
(2) SUBSECTION (b)- The amendment made by subsection (b) shall take effect
on the date of the enactment of this Act.
SEC.
303. REPEAL OF ANNUAL DEDUCTIBLE LIMITATION ON HSA CONTRIBUTIONS.
(a)
IN GENERAL.—Paragraph (2) of section 223(b) (relating to monthly limitation) is amended—
(1) in subparagraph (A) by striking ‘‘the
lesser of—’’ and all that follows and inserting ‘‘$2,250.’’, and (2) in subparagraph (B) by striking ‘‘the lesser of—’’ and all that follows and inserting ‘‘$4,500.’’.
(b) CONFORMING AMENDMENT.—Section
223(d)(1)(A)(ii)(I) is amended by striking ‘‘subsection (b)(2)(B)(ii)’’ and inserting ‘‘subsection (b)(2)(B)’’.
(c) EFFECTIVE DATE.—The amendments made
by this section shall apply to taxable years beginning after December 31, 2006.
SEC.
304. MODIFICATION OF COST-OF-LIVING ADJUSTMENT.
Paragraph
(1) of section 223(g) (relating to cost-of living adjustment) is amended
by adding at the end the following new flush sentence:
‘‘In the case of adjustments made for any taxable
year beginning after 2007, section 1(f)(4) shall be applied for purposes of this
paragraph by substituting ‘March 31’ for ‘August 31’, and the Secretary shall publish the adjusted amounts under subsections (b)(2)
and (c)(2)(A) for taxable years beginning in any calendar year no later than
June 1 of the preceding calendar year.’’.
SEC.
305. CONTRIBUTION LIMITATION NOT REDUCED FOR PART-YEAR COVERAGE.
(a)
INCREASE IN LIMIT FOR INDIVIDUALS BECOMING ELIGIBLE INDIVIDUALS AFTER
BEGINNING OF THE YEAR.—Subsection (b) of section 223 (relating to limitations) is amended by adding
at the end the following new paragraph:
‘‘(8) INCREASE IN LIMIT FOR INDIVIDUALS BECOMING ELIGIBLE
INDIVIDUALS AFTER THE BEGINNING OF THE YEAR.—
‘‘(A) IN GENERAL.—For
purposes of computing the limitation under paragraph (1) for any taxable year,
an individual who is an eligible individual during the last month of such taxable
year shall be treated—
‘‘(i) as having been an eligible individual during
each of the months in such taxable year, and
‘‘(ii) as having been enrolled, during each of the
months such individual is treated as an eligible individual solely by reason
of clause (i), in the same high deductible health plan in which the individual
was enrolled for the last month of such taxable year.
‘‘(B) FAILURE TO MAINTAIN HIGH DEDUCTIBLE HEALTH PLAN
COVERAGE.—
‘‘(i) IN GENERAL.—If,
at any time during the testing period, the individual is not an eligible individual,
then—‘‘(I) gross income of the individual for the taxable year in which occurs the first
month in the testing period for which such individual is not an eligible individual
is increased by the aggregate amount of all contributions to the health savings
account of the individual which could not have been made but for subparagraph
(A), and ‘‘(II) the tax imposed by this chapter for any taxable year on the individual shall
be increased by 10 percent of the amount of such in crease.
‘‘(ii) EXCEPTION FOR DISABILITY OR DEATH.—Subclauses
(I) and (II) of clause (i) shall not apply if the individual ceased to be an
eligible individual by reason of the
death of the individual or the individual becoming disabled (within the meaning
of section 72(m)(7)).
‘‘(iii) TESTING PERIOD.—The
term‘testing period’ means the period beginning with the last month of the taxable year referred
to in subparagraph (A) and ending
on the last day of the 12th month following such month.’’.
(b) EFFECTIVE DATE.—The amendments made
by this section shall apply to taxable years beginning after December 31, 2006.
SEC.
306. EXCEPTION TO REQUIREMENT FOR EMPLOYERS TO MAKE COMPARABLE HEALTH
SAVINGS ACCOUNT CONTRIBUTIONS.
(a)
IN GENERAL.—Section 4980G (relating to failure of employer to make comparable health savings
account contributions) is amended by adding at the end the following
new subsection:
‘‘(d) EXCEPTION.—For purposes
of applying section 4980E to a contribution to a health savings account of an
employee who is not a highly compensated employee
(as defined in section 414(q)), highly compensated employees shall not be treated
as comparable participating employees.’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after December 31, 2006.
SEC.
307. ONE-TIME DISTRIBUTION FROM INDIVIDUAL RETIREMENT PLANS TO FUND
HSAs.
(a)
IN GENERAL.—Subsection (d) of section 408 (relating to taxability of beneficiary of employees’ trust) is amended by adding at the end the following new para
graph:
‘‘(9) DISTRIBUTION FOR HEALTH SAVINGS ACCOUNT FUNDING.—
‘‘(A) IN GENERAL.—In the
case of an individual who is an eligible individual (as defined in section 223(c))
and who elects the application of this paragraph for a taxable year, gross income
of the individual for the taxable year does not include a qualified HSA funding
distribution to the extent such distribution is otherwise includible in gross
income.
‘‘(B) QUALIFIED HSA FUNDING DISTRIBUTION.—For
purposes of this paragraph, the term ‘qualified HSA funding distribution’ means a distribution from an individual retirement plan (other than a plan described
in subsection (k) or (p)) of the employee to the extent that such distribution
is contributed to the health savings account of the individual in a direct trustee-to-trustee
transfer.
‘‘(C) LIMITATIONS.—‘‘(i)
MAXIMUM DOLLAR LIMITATION.—The amount excluded from gross income by subparagraph (A) shall not exceed the
excess of—
‘‘(I) the annual limitation under section 223(b) computed
on the basis of the type of coverage under the high deductible health plan covering
the individual at the time of the qualified HSA funding distribution, over
‘‘(II) in the case of a distribution described in
clause (ii)(II), the amount of the earlier qualified HSA funding distribution.
‘‘(ii) ONE-TIME TRANSFER.—
‘‘(I) IN GENERAL.—Except
as provided in subclause (II), an individual may make an election under subparagraph
(A) only for one qualified HSA funding distribution during
the lifetime of the individual. Such an election, once made, shall be irrevocable.
‘‘(II) CONVERSION FROM SELF ONLY TO FAMILY COVERAGE.—If
a qualified HSA funding distribution is made during a month in a taxable year
during which an individual has self-only coverage under a high deductible health
plan as of the first day of the month, the individual may elect to make an additional
qualified HSA
funding distribution during a subsequent month in such taxable year during
which the individual has family coverage under a high deductible health plan
as of the first day of the subsequent month.
‘‘(D) FAILURE TO MAINTAIN HIGH DEDUCTIBLE HEALTH PLAN
COVERAGE.—
‘‘(i) IN GENERAL.—If,
at any time during the testing period, the individual is not an eligible individual,
then the aggregate amount of all contributions to the health savings account
of the individual made under subparagraph (A)—
‘‘(I) shall be includible in the gross income of the
individual for the taxable year in which occurs the first month in the testing
period for which such individual is not an eligible individual, and
‘‘(II) the tax imposed by this chapter for any taxable
year on the individual shall be increased by 10 percent of the amount which is
so includible.
‘‘(ii) EXCEPTION FOR DISABILITY OR DEATH.—Subclauses
(I) and (II) of clause (i) shall not apply if the individual ceased to be an
eligible individual by reason of the
death of the individual or the individual becoming disabled (within the meaning
of section 72(m)(7)).
‘‘(iii) TESTING PERIOD.—The
term‘testing period’ means the period beginning with the month in which the qualified HSA funding
distribution is contributed to a
health savings account and ending on the last day of the 12th month following
such month.
‘‘(E) APPLICATION OF SECTION 72.—Not
withstanding section 72, in determining the extent to which an amount is treated
as otherwise includible in gross income for purposes of sub-paragraph (A), the
aggregate amount distributed from an individual retirement plan shall be treated
as includible in gross income to the extent that such amount does not exceed
the aggregate amount which would have been so includible if all amounts from
all individual retirement plans were distributed. Proper adjustments shall be
made in applying section 72 to other distributions in such taxable year and subsequent
taxable years.’’.
(b) COORDINATION WITH LIMITATION ON CONTRIBUTIONS TO HSAS.—Section
223(b)(4) (relating to coordination with other contributions) is amended by
striking ‘‘and’’ at the end of subparagraph (A), by striking the period at the end of subparagraph
(B) and inserting‘‘, and’’, and by inserting after subparagraph (B) the following new subparagraph:
‘‘(C) the aggregate amount contributed to health savings
accounts of such individual for such taxable year under section 408(d)(9) (and
such amount shall not be allowed as a deduction under subsection (a)).’’.
(c) EFFECTIVE DATE.—The amendments made
by this section shall apply to taxable years beginning after December 31, 2006.
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