Section 223 of the Internal Revenue Code provides that an individual’s interest in the balance of her health savings account (“HSA”) is not subject to forfeiture. Consequently, contributions made by an employer to an employee’s HSA may be recouped only in very limited circumstances.
In IRS Notice 2008-59 (the “Notice”), the IRS described several specific circumstances in which an employer may recoup contributed amounts from the HSA trustee. However, in its recently released Information Letter 2018-0033 (the “Letter”), the IRS confirmed that the circumstances discussed in the Notice were not intended to be exclusive and clarified that if there is clear documentary evidence demonstrating an administrative or process error on the part of the employer or the HSA trustee (an “HSA Process Error”), an employer may request that the HSA trustee return the amounts to the employer, with any correction needed to put the parties in the same position they would have been in had the error not occurred. The Letter reiterates the circumstances described in the Notice that would permit an employer to recoup erroneous HSA contributions and provides a list of examples of HSA Process Errors that also would allow for recoupment by employers.
IRS information letters, such as the Letter, are issued for informational purposes only and do not constitute authoritative rulings of the IRS. However, the Letter provides helpful informal guidance regarding how the IRS may interpret the permissibility of an employer’s recoupment of erroneous HSA contributions in the circumstances described in the Letter.