IRS Provides Additional Examples Where Employers May Recover HSA Contributions
The IRS has issued Information Letter 2018-0033, which provides details on certain situations that allow an employer to request the return of Health Savings Account ("HSA") contributions it made on behalf of its employees. Information Letter 2018-0033 expands upon the previous guidance regarding the recovery of HSA contributions found in IRS Notice 2008-59.
Background. IRS Notice 2008-59 identified the limited circumstances under which an employer may seek the direct return of HSA contributions from the HSA trustee or custodian. These situations include contributions made on behalf of employees who were never HSA-eligible, and contributions made in excess of the annual statutory limit.
Information Letter 2018-0033. Information Letter 2018-0033 clarifies that Notice 2008-59 was not intended to provide an exclusive set of circumstances in which an employer may request the return of HSA contributions. The letter further confirms that where there is clear documentary evidence demonstrating that there was an administrative or process error, the employer may request the return of the contributed amounts, with any correction placing the parties in the same position as if the error had never occurred.
Specifically, Information Letter 2018-0033 provides the following examples of the administrative or process errors where employers may seek to directly recover HSA contributions:
- HSA contributions that exceeded an employee's payroll election.
- An amount that was mistakenly contributed for an employee due to an "incorrect spreadsheet" or "similar name".
- Contributions that were incorrectly entered by a payroll administrator.
- Additional contributions that were received due to a duplicative payroll file transmission.
- Incorrect contributions that resulted from delayed processing of a payroll withholding change for an employee.
- Incorrect contributions that resulted from disparity between elected annual contribution and actual number of pay periods.
- Incorrect contribution resulting from misplaced decimal point.