IRS Clarifies When an Employer May Recover Mistaken HSA Contributions

On December 28, 2018, the IRS Office of the Chief Counsel released Informational Letter 2018-0033 to clarify when employers can request to recover mistaken HSA contributions. This letter should be used to interpret IRS Notice 2008-59, the previous guidance that served as a primary source of information on HSA issues and administrative procedures.

The letter states that situations previously set forth in IRS Notice 2008-59 were not intended to be an exclusive list, and as long as the parties are put in the same position they would have been had the error not occurred, employers can request excess contributions be returned when they were a result of an administrative or process error.

Correctable errors under Notice 2008-59

• Contributions made on behalf of employees who were never HSA-eligible
• Contributions that exceed annual statutory contribution limits

Examples of clarified correctable errors under Informational Letter 2018-0033

• HSA contribution that exceeds the employee’s payroll withholding election
• Incorrect contribution amounts due to an incorrect spreadsheet being transmitted or because employees with similar names were confused with each other
• Contribution was incorrectly entered by a payroll administrator (in-house or third-party)
• Duplicate payroll transmittals resulted in a double HSA contribution
• Contribution amount was incorrect because the employee’s payroll election was not processed in a timely manner
• Mathematical errors were made when determining the HSA contribution amount
• Incorrect contribution due to an erroneous decimal place that resulted in a contribution greater than intended