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In Revenue Procedure 2021-25, the IRS announced the inflation adjustments that will apply to Health Savings Accounts (HSAs) under IRC Section 223 effective for calendar year 2022.

• An additional contribution of $1,000 is permitted for individuals age 55 and older. Those enrolled in Medicare are not eligible to participate. For plan years beginning in 2022, the maximum amount that may be made newly available for the plan year for an excepted Health Reimbursement Arrangement (HRA) under Reg. Section 54.9831-1(c)(3)(viii) is $1,800.

Form W-2 reporting reminder

Employer contributions and employee pre-tax contributions to an HSA are required to be reported on Form W-2, box 12, Code W. Employer and employee pretax contributions that, when combined, exceed the annual calendar year limit must be treated as taxable wages and reported in Form W-2, boxes 1, 3 (up to the Social Security limit) and 5. (2021 Form W-2 instructions, page 11). Additionally, excess contributions to an HSA are subject to an excise tax.

Ernst & Young LLP insights

HRA- and HSA-eligible health plans constitute what are called "consumer-driven" health plans (CDHPs) because they give employees the choice to elect health plan options that best meet their projected out-of-pocket medical expenses. CDHPs also raise payroll challenges because the rules governing tax treatment and reporting for each of these medical reimbursement account options (FSA, HRA, HSA and MSA) are unique.

How companies name their health plans may not clearly communicate the type of medical reimbursement vehicle that applies, causing time-consuming and potentially costly errors in payroll system configurations.

To avoid year-end reporting complications, now is a good time to review employee elections and how they are being handled in your payroll system.

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EY Payroll News Flash