§106 — Title 26 Internal Revenue Code | U.S. Code

Summary

Employer-paid accident and health coverage is not counted as an employee’s taxable income. When an employer puts money into an Archer MSA or a health savings account (HSA) for an employee who meets the law’s eligibility rules, that money is treated like employer-provided health coverage — but only up to the yearly dollar limit the law allows. Letting an employee choose between those contributions and other employer health plan contributions does not make the money taxable. Employers can only deduct those contributions in the year they pay them. People who must file tax returns must report the total employer contributions to their Archer MSAs or HSAs. Employer-paid long‑term care benefits are taxable if paid through a flexible spending–type plan that reimburses incurred expenses and whose available reimbursement is less than 500% of the plan’s value. Plans that move money to an HSA in certain situations do not lose their status if the move meets strict rules: the amount must not exceed the lesser of the balance on September 21, 2006, or the balance at distribution, and the employer must put it into the HSA before January 1, 2012. If the worker stops being eligible during the 12‑month testing period after that transfer, the amount is taxable and subject to a 10% extra tax unless the worker died or became disabled. Menstrual care products count as medical care. Small‑employer HRA payments are not treated as employer coverage if the person lacked minimum essential coverage in the month care was provided. Definitions in one line: “Eligible individual” — a person who meets the law’s rules for Archer MSAs or HSAs; “Archer MSA” and “health savings account” — the specific tax accounts the law describes; “testing period” — the month of contribution plus the next 12 months.

Title 26, §106

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(a)Except as otherwise provided in this section, gross income of an employee does not include employer-provided coverage under an accident or health plan.

(b)(1)In the case of an employee who is an eligible individual, amounts contributed by such employee’s employer to any Archer MSA 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 under section 220(b)(1) (determined without regard to this subsection) which is applicable to such employee for such taxable year.

(2)No amount shall be included in the gross income of any employee solely because the employee may choose between the contributions referred to in paragraph (1) and employer contributions to another health plan of the employer.

(3)Any employer contribution to an Archer MSA, if otherwise allowable as a deduction under this chapter, shall be allowed only for the taxable year in which paid.

(4)Every individual required to file a return under section 6012 for the taxable year shall include on such return the aggregate amount contributed by employers to the Archer MSAs of such individual or such individual’s spouse for such taxable year.

(5)Paragraph (1) shall not apply for purposes of section 4980B.

(6)For purposes of this subsection, the terms “eligible individual” and “Archer MSA” have the respective meanings given to such terms by section 220.

(7)For penalty on failure by employer to make comparable contributions to the Archer MSAs of comparable employees, see section 4980E.

(c)(1)Gross income of an employee shall include employer-provided coverage for qualified long-term care services (as defined in section 7702B(c)) to the extent that such coverage is provided through a flexible spending or similar arrangement.

(2)For purposes of this subsection, a flexible spending arrangement is a benefit program which provides employees with coverage under which—

(A)specified incurred expenses may be reimbursed (subject to reimbursement maximums and other reasonable conditions), and

(B)the maximum amount of reimbursement which is reasonably available to a participant for such coverage is less than 500 percent of the value of such coverage.

(d)(1)In the case of an employee who is an eligible individual (as defined in section 223(c)(1)), amounts contributed by such employee’s employer to any health savings account (as defined in section 223(d)) 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 under section 223(b) (determined without regard to this subsection) which is applicable to such employee for such taxable year.

(2)Rules similar to the rules of paragraphs (2), (3), (4), and (5) of subsection (b) shall apply for purposes of this subsection.

(3)For penalty on failure by employer to make comparable contributions to the health savings accounts of comparable employees, see section 4980G.

(e)(1)A plan shall not fail to be treated as a health flexible spending arrangement or health reimbursement arrangement under this section or section 105 merely because such plan provides for a qualified HSA distribution.

(2)The term “qualified HSA distribution” means a distribution from a health flexible spending arrangement or health reimbursement arrangement to the extent that such distribution—

(A)does not exceed the lesser of the balance in such arrangement on September 21, 2006, or as of the date of such distribution, and

(B)is contributed by the employer directly to the health savings account of the employee before January 1, 2012.

(3)(A)If, at any time during the testing period, the employee is not an eligible individual, then the amount of the qualified HSA distribution—

(i)shall be includible in the gross income of the employee for the taxable year in which occurs the first month in the testing period for which such employee is not an eligible individual, and

(ii)the tax imposed by this chapter for such taxable year on the employee shall be increased by 10 percent of the amount which is so includible.

(B)Clauses (i) and (ii) of subparagraph (A) shall not apply if the employee ceases to be an eligible individual by reason of the death of the employee or the employee becoming disabled (within the meaning of section 72(m)(7)).

(4)For purposes of this subsection—

(A)The term “testing period” means the period beginning with the month in which the qualified HSA distribution is contributed to the health savings account and ending on the last day of the 12th month following such month.

(B)The term “eligible individual” has the meaning given such term by section 223(c)(1).

(C)A qualified HSA distribution shall be treated as a rollover contribution described in section 223(f)(5).

(5)For purposes of this title—

(A)A qualified HSA distribution shall be treated as a payment described in subsection (d).

(B)(i)Except as provided in clause (ii), section 4980G shall not apply to qualified HSA distributions.

(ii)In the case of a qualified HSA distribution to any employee, the failure to offer such distribution to any eligible individual covered under a high deductible health plan of the employer shall (notwithstanding section 4980G(d)) be treated for purposes of section 4980G as a failure to meet the requirements of section 4980G(b).

(f)For purposes of this section and section 105, expenses incurred for menstrual care products (as defined in section 223(d)(2)(D)) shall be treated as incurred for medical care.

(g)For purposes of this section and section 105, payments or reimbursements from a qualified small employer health reimbursement arrangement (as defined in section 9831(d)) of an individual for medical care (as defined in section 213(d)) shall not be treated as paid or reimbursed under employer-provided coverage for medical expenses under an accident or health plan if for the month in which such medical care is provided the individual does not have minimum essential coverage (within the meaning of section 5000A(f)).

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COBRA, referred to in the heading for subsec. (b)(5), probably means the Consolidated Omnibus Budget Reconciliation Act of 1985, Pub. L. 99–272, Apr. 7, 1986, 100 Stat. 82. For complete classification of this Act to the Code, see Tables.

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2020—Subsec. (f). Pub. L. 116–136 added subsec. (f) and struck out former subsec. (f). Prior to amendment, text read as follows: “For purposes of this section and section 105, reimbursement for expenses incurred for a medicine or a drug shall be treated as a reimbursement for medical expenses only if such medicine or drug is a prescribed drug (determined without regard to whether such drug is available without a prescription) or is insulin.” 2016—Subsec. (g). Pub. L. 114–255 added subsec. (g). 2014—Subsec. (c)(1). Pub. L. 113–295 substituted “Gross income” for “Effective on and after January 1, 1997, gross income”. 2010—Subsec. (f). Pub. L. 111–148 added subsec. (f). 2006—Subsec. (e). Pub. L. 109–432 added subsec. (e). 2003—Subsec. (d). Pub. L. 108–173 added subsec. (d). 2000—Subsec. (b). Pub. L. 106–554 § 1(a)(7) [title II, § 202(b)(6)], substituted “Archer MSAs” for “medical savings accounts” in heading. Subsec. (b)(1). Pub. L. 106–554 § 1(a)(7) [title II, § 202(a)(2)], substituted “Archer MSA” for “medical savings account”. Subsec. (b)(3). Pub. L. 106–554 § 1(a)(7) [title II, § 202(b)(10)], substituted “an Archer MSA” for “a Archer MSA”. Pub. L. 106–554 § 1(a)(7) [title II, § 202(a)(2)], substituted “Archer MSA” for “medical savings account”. Subsec. (b)(4). Pub. L. 106–554, § 1(a)(7) [title II, § 202(b)(2)(A)], substituted “Archer MSAs” for “medical savings accounts”. Subsec. (b)(6). Pub. L. 106–554 § 1(a)(7) [title II, § 202(a)(2)], substituted “Archer MSA” for “medical savings account”. Subsec. (b)(7). Pub. L. 106–554, § 1(a)(7) [title II, § 202(b)(2)(A)], substituted “Archer MSAs” for “medical savings accounts”. 1996—Pub. L. 104–191, § 301(c)(1), amended text generally. Prior to amendment, text read as follows: “Gross income of an employee does not include employer-provided coverage under an accident or health plan.” Subsec. (c). Pub. L. 104–191, § 321(c)(2), added subsec. (c). 1989—Subsec. (b)(2). Pub. L. 101–239 amended subsec. (b)(2) as it existed prior to general amendment by Pub. L. 100–647 by striking out the last sentence which read as follows: “Under

Regulations

, rules similar to the rules of subsections (a) and (b) of section 52 (relating to employers under common control) shall apply for purposes of subparagraph (A).” See

Effective Date

of 1989 Amendment note below. 1988—Pub. L. 100–647, § 3011(b)(1), amended section generally, substituting a single undesignated par. for former subsec. (a) providing that gross income does not include employer-provided coverage under an accident or health plan and subsec. (b) providing for an exception for highly compensated individuals where a plan fails to provide certain continuation coverage. Subsec. (b)(1). Pub. L. 100–647, § 1018(t)(7)(A), substituted “any employer-provided coverage” for “any amount contributed by an employer” and “under a group” for “to a group”. 1986—Pub. L. 99–272 designated existing provisions as subsec. (a) and added subsec. (a) heading and subsec. (b). Subsec. (a). Pub. L. 99–514, § 1151(j)(2), amended subsec. (a) generally. Prior to amendment, subsec. (a) read as follows: “Gross income does not include contributions by the employer to accident or health plans for compensation (through insurance or otherwise) to his employees for personal injuries or sickness.” Subsec. (b)(1). Pub. L. 99–514, § 1114(b)(1), substituted “highly compensated employee (within the meaning of section 414(q))” for “highly compensated individual (within the meaning of section 105(h)(5))”.

Not Required Until January 1, 1989For provisions directing that if any

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made by subtitle A or subtitle C of title XI [§§ 1101–1147 and 1171–1177] or title XVIII [§§ 1800–1899A] of Pub. L. 99–514 require an amendment to any plan, such plan amendment shall not be required to be made before the first plan year beginning on or after Jan. 1, 1989, see section 1140 of Pub. L. 99–514, as amended, set out as a note under section 401 of this title.

§106 Contributions by employer to accident and health plans

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