Practice Strategies

New Legislation Makes HSAs More Attractive

Legislation creating new incentives for Americans to contribute to health savings accounts (HSAs) was signed into law by President Bush on December 20, 2006. Prior to the enactment of the Tax Relief and Health Care Act of 2006, individuals with an HSA-eligible health plan were permitted to make tax-deductible contributions to an HSA equal to the lesser of the amount of the HSA deductible or an indexed statutory maximum amount, $2,850 for self-only coverage and $5,650 for family coverage in tax year 2007. The new legislation sets the contribution limit at the indexed statutory maximum, regardless of the size of the plan’s deductible.

In addition, the new law permits a one-time tax-free transfer of funds held in a flexible spending account (FSA) or health reimbursement arrangement (HRA) to an HSA. Taxpayers are also permitted to make a one-time distribution from an individual retirement account (IRA) to an HSA.

The legislation also repeals the pro-rated contribution limits that applied to HSAs created in the middle of a tax year, allowing taxpayers who start accounts during the year to make the full annual contribution.

The law further repeals the requirement that employers make comparable contributions to the HSAs of all employees. Under the new law, employers are allowed to make larger contributions to the HSAs of lower-paid employees than to the accounts of highly compensated employees.

For more information about our services to the healthcare industry, contact:
Maxine Lawyer, CPA, Partner - Dallas/Fort Worth at 972.448.6905 or
Philip Fox, CPA, Partner - Houston at 713.297.6914.

The articles in this newsletter are general in nature and are not a substitute for accounting, legal, or other professional services. We assume no liability for the reader's reliance on this information. Before implementing any of the ideas contained in this publication, consult a professional advisor to determine whether they apply to your unique circumstances.
© 2007