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IRS ISSUES GUIDANCE ON HRA AND FSA ROLLOVERS TO HEALTH SAVING ACCOUNTS
On February 15, 2007, the Internal Revenue Service issued IRS Notice 2007-22 which provides additional guidance on rollovers from Health Reimbursement Arrangements (HRA's) and Flexible Spending Accounts (FSA'S) to Health Saving Accounts (HSA's). This notice also provides transitional relief for HRA and FSA rollovers completed by March 15, 2007.
In brief, the guidance outlines the conditions that must be satisfied for HRA and FSA rollovers ("qualified HSA distributions") to maintain their favorable tax treatment. These conditions include amending the current plan prior to the plan year-end to allow for the rollover, permitting the employee to elect the rollover, freezing the year-end HRA or FSA balance and transferring that balance to the HSA within two and a half months after the close of the plan year.
Transitional relief is offered for "qualified HSA distributions" that are completed by March 15, 2007. This relief allows the employer to permit rollovers from 2006 FSA and HRA accounts and does away with the requirement that the year-end FSA or HRA balances be frozen. It also gives an employer until March 15 to amend the plan, allow for employee elections and to transfer the rollover amounts.
If you have any questions regarding this notice, please do not hesitate to contact our office.
View a copy of the complete IRS Notice 2007-22