Generally, a person’s interest in a Health Savings Account (HSA) is nonforfeitable. However, in the past, the Internal Revenue Service’s Notice 2008-59 described limited circumstances under which an employer may recoup contributions made to an employee’s HSA.
The Internal Revenue Service (IRS) recently released Information Letter 2019-0033 (Letter), clarifying that IRS Notice 2008-59 was not intended to provide an exclusive set of circumstances in which an employer can recoup contributions made to an HSA. If there is clear evidence of an administrative or process error, an employer may request that the contributions it made to an employee’s HSA be returned. This correction should put the employer and employee in the same position that they would have been in if the error had not occurred.
The Letter lists the following examples of when an employer may recoup HSA contributions:
- An amount withheld and deposited in an employee’s HSA for a pay period is greater than the amount shown on the employee’s HSA salary reduction election.
- An employee receives an employer contribution that the employer did not intend to contribute but the amount was transmitted because an incorrect spreadsheet is accessed or because employees with similar names are confused with each other.
- An employee receives an incorrect HSA contribution because it is incorrectly entered by a payroll administrator (whether in-house or third-party) causing the incorrect amount to be withheld and contributed.
- An employee receives a second HSA contribution because duplicate payroll files are transmitted.
- An employee receives as an incorrect HSA contribution because 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.
- An employee receives an incorrect HSA contribution because an HSA contribution amount is calculated incorrectly, such as a case in which an employee elects a total amount for the year that is allocated by the system over an incorrect number of pay periods.
- An employee receives an incorrect HSA contribution because the decimal position is set incorrectly resulting in a contribution greater than intended.