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CCH® BENEFITS — 06/14/10

Health Reform 2010, Additional Tax On Distributions From HSAs And MSAs

from Spencer’s Benefits Reports: For the next few weeks, Spencer's Benefits Reports will highlight specific provisions in the new health reform law which affect employer-sponsored plans.

Sec. 9004 of the Affordable Care Act concerns the additional tax on HSA and Archer MSA distributions.

The additional tax on distributions from health savings accounts (HSAs) and Archer medical savings accounts (MSAs) not used for qualified medical expenses is increased to 20% of the amount of the distribution included in gross income.

HSAs and Archer MSAs provide tax-favored treatment for amounts that are contributed and distributed to pay the qualified medical expenses of the account beneficiary, his or her spouse, or dependent (IRC Secs. 220 and 223). Distributions from an HSA or an MSA that are not used for qualified medical expenses are included in beneficiary’s gross income and subject to an additional penalty, unless made after the beneficiary’s death, or disability.

Note that effective for distributions from an HSA or Archer MSA after Dec. 31, 2010, qualified medical expenses includes the cost of any medicine or drug only if the drug is prescribed by a physician or is insulin.

The additional tax on HSA distributions not used for qualified medical expenses is increased from 10% to 20% of the amount includible in gross income. The additional tax on distributions made from Archer MSAs not used for qualified medical expenses is increased from 15% to 20% of the amount includible in gross income.

The increase in the tax imposed on nonqualified distributions from HSAs and Archer MSAs will not impact state taxation.

Effective date. The provision applies to distributions made after Dec. 31, 2010.

CCH Law, Explanation And Analysis Of Health Reform Act Available

CCH’s Law, Explanation And Analysis of the Patient Protection and Affordable Care Act of 2010 provides the most comprehensive and practical guidance available to professionals needing to make sense of this historic legislation. Included in the online version is the complete text of the law, integrating both the Affordable Care Act and the Health and Education Reconciliation Act. A hard-copy version of the book is available for $149.

For more information or to order the hard-copy version of the book, please call (800) 248-3248 or click http://hr.cch.com/Products/ProductID-7127.asp. Discounts are available for multiple copies.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

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