UIPL15-04.html

ETA Advisory File Text

UNEMPLOYMENT INSURANCE PROGRAM LETTER No.15-04 Employment and Training Administration Advisory System U.S. Department of Labor Washington D.C. 20210 CLASSIFICATION Wages HSAs CORRESPONDENCE SYMBOL DL DATE March 16 2004 ADVISORY UNEMPLOYMENT INSURANCE PROGRAM LETTER No.15-04 TO STATE WORKFORCE AGENCIES FROM CHERYL ATKINSON s Administrator Office of Workforce Security SUBJECT Wages - Treatment of Health Savings Accounts 1. Purpose.To advise states of an amendment to the definition of wages in Federal unemployment compensation UC law related to the treatment of employer payments made for a Health Savings Account. 2. Reference. The Internal Revenue Code IRC including Section 3306 b of the Federal Unemployment Tax Act FUTA Public Law P.L. 108-173 the "Medicare Prescription Drug Improvement and Modernization Act of 2003 " signed on December 8 2003 Unemployment Insurance Program Letter No. 36-96 and Internal Revenue Service Publications 15 commonly called Circular E and 969. 3. Background. In 1996 Congress created "medical savings accounts " which are commonly called Archer MSAs and are discussed in detail in IRS Publication 969. In UIPL 36-96 states were notified that certain contributions made by employers to these accounts were exempt from wages for FUTA purposes. Specifically an employers contributions to an Archer MSA are not wages and therefore are not subject to FUTA taxes if it is reasonable to believe at the time of payment of the contributions that they will be excludable from the income of the employee. However the provisions relating to Archer MSAs contain a termination provision. As explained in the Conference Report for the newly enacted P.L. 108-173 "After 2003 no new contributions can be made to Archer MSAs except by or on behalf of individuals who previously had Archer MSA contributions and employees who are employed by a participating employer." H. Rep. 108-391 page 840. In response to this termination P.L. 108-173 created a new type of savings account called a "Health Savings Account" HSA . 4. Amendment to FUTA. For FUTA purposes the treatment of employer contributions to HSAs mirrors that for Archer MSAs. Section 1201 d 1 B of P.L. 108-173 added a new paragraph 18 to Section 3306 b FUTA concerning treatment of payments to an HSA made by an employer. Under this amendment the term "wages" does not include - any payment made to or for the benefit of an employee if at the time of such payment it is reasonable to believe that the employee will be able to exclude such payment from income under section 106 d . Section 106 d IRC as created by P.L. 108-173 addresses employer contributions to an HSA. Among other things it states that in the case of an employee who is an eligible individual for HSA purposes "amounts contributed by such employees employer to any HSA of such employee shall be treated as employer-provided coverage for medical expenses under an accident or health plan to the extent such amounts do not exceed the limitation for an HSA with respect to a taxable year. The amendments relating to HSAs "apply to taxable years beginning after December 31 2003." See Section 1201 k of P.L. 108-173. The authority for interpreting the HSA provisions rests with the IRS. Therefore for more specific guidance states will need to await the issuance of IRS instructions. States should be aware that withdrawals from HSAs are limited to certain expenses. The HSA provisions prohibit withdrawals for the payment of health insurance premiums with certain exceptions. One of these exceptions is "any expense for coverage under . . . a health plan during a period in which the individual is receiving unemployment compensation under any Federal or State law." See Section 223 d 2 C iii IRC as created by P.L. 108-173. The Archer MSA law has contained an identical provision relating to withdrawals for insurance premiums and receipt of UC since its creation in 1996. See Section 220 d 2 B ii III IRC. RESCISSIONSEXPIRATION DATE NoneContinuing 5. Action Required. Administrators should provide this information to appropriate staff. Amendments to state law are not required for conformity purposes. Instead it is the states option whether it amends its UC law to exclude eligible employer contributions to HSAs. 6. Inquiries. Direct questions to the appropriate Regional Office.