Title 26 — Internal Revenue CodeRelease 119-73not60
§106 Contributions by Employer to Accident and Health Plans
Title 26 › Subtitle Subtitle A— Income Taxes › Chapter 1— NORMAL TAXES AND SURTAXES › Subchapter B— Computation of Taxable Income › Part III— ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME › § 106
Summary
Employer-paid accident and health coverage is normally not counted as an employee’s taxable income. When an employer puts money into an employee’s Archer MSA or health savings account (HSA) for a worker who qualifies, that money is treated like employer-provided medical coverage and is tax-free up to the yearly legal limit that applies. Choosing between those account contributions and other employer health contributions does not make the money taxable. Employers can only deduct their contribution in the year they pay it. People who must file a tax return must report the total employer contributions to their Archer MSA or HSA. Employers who fail to make fair, comparable contributions can face penalties. If long-term care is paid through a flexible spending-type plan, that coverage is included in income. A flexible spending plan is one that reimburses certain expenses and where the max reimbursement available is less than 500 percent of the plan’s value. Plans that move old FSA/HRA money to an HSA can still keep their plan status if the transfer meets the rules: the transfer can be no more than the balance on September 21, 2006 (or the balance at transfer, if smaller), must be put into the HSA by January 1, 2012, and is followed by a 12-month testing period. If the worker stops being HSA-eligible during that testing period, the transferred amount becomes taxable and there is a 10 percent additional tax, unless the worker dies or becomes disabled. Menstrual care products count as medical expenses. Small-employer HRAs won’t count as employer-provided coverage for a person for a month if that person does not have minimum essential health coverage for that month. Terms: “eligible individual” — someone who meets the rules to have these accounts; “Archer MSA” and “health savings account (HSA)” — two kinds of tax-advantaged medical accounts.
Full Legal Text
Title 26, §106
Internal Revenue Code — Source: USLM XML via OLRC
(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)).
Legislative History
Notes & Related Subsidiaries
Editorial Notes
References in Text
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.
Amendments
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))”.
Statutory Notes and Related Subsidiaries
Effective Date
of 2020 Amendment Pub. L. 116–136, div. A, title III, § 3702(d)(2), Mar. 27, 2020, 134 Stat. 416, provided that: “The amendment made by subsection (c) [amending this section] shall apply to expenses incurred after December 31, 2019.”
Effective Date
of 2016 AmendmentAmendment by Pub. L. 114–255 applicable to years beginning after Dec. 31, 2016, see section 18001(a)(7) of Pub. L. 114–255, set out as a note under section 36B of this title.
Effective Date
of 2014 AmendmentAmendment by Pub. L. 113–295 effective Dec. 19, 2014, subject to a
Savings Provision
, see section 221(b) of Pub. L. 113–295, set out as a note under section 1 of this title.
Effective Date
of 2010 Amendment Pub. L. 111–148, title IX, § 9003(d)(2), Mar. 23, 2010, 124 Stat. 854, provided that: “The amendment made by subsection (c) [amending this section] shall apply to expenses incurred with respect to taxable years beginning after December 31, 2010.”
Effective Date
of 2006 Amendment Pub. L. 109–432, div. A, title III, § 302(c)(1), Dec. 20, 2006, 120 Stat. 2949, provided that: “The amendment made by subsection (a) [amending this section] shall apply to distributions on or after the date of the enactment of this Act [Dec. 20, 2006].”
Effective Date
of 2003 AmendmentAmendment by Pub. L. 108–173 applicable to taxable years beginning after Dec. 31, 2003, see section 1201(k) of Pub. L. 108–173, set out as a note under section 62 of this title.
Effective Date
of 1996 AmendmentAmendment by section 301(c)(1) of Pub. L. 104–191 applicable to taxable years beginning after Dec. 31, 1996, see section 301(j) of Pub. L. 104–191, set out as a note under section 62 of this title. Amendment by section 321(c)(2) of Pub. L. 104–191 applicable to contracts issued after Dec. 31, 1996, see section 321(f) of Pub. L. 104–191, set out as an
Effective Date
note under section 7702B of this title.
Effective Date
of 1989 Amendment Pub. L. 101–239, title VII, § 7862(c)(1)(C), Dec. 19, 1989, 103 Stat. 2432, provided that: “The
Amendments
made by this paragraph [amending this section and section 1161 of Title 29, Labor] shall apply to years beginning after December 31, 1986.” Pub. L. 101–239, title VII, § 7863, Dec. 19, 1989, 103 Stat. 2434, provided that: “Except as otherwise provided in this subpart any amendment made by this subpart [subpart A (§§ 7861–7863) of part V of title VII of Pub. L. 101–239, amending this section and section 162, 411, 417, and 4980B of this title and sections 1052 to 1055, 1161, 1162, 1167, 1398, and 1461 of Title 29, Labor, enacting provisions set out as notes under this section and section 162, 417, 1167, 4980, and 4980B of this title, and amending provisions set out as notes under section 401 and 411 of this title and section 1001 and 1054 of Title 29], shall take effect as if included in the provision of the Reform Act [Pub. L. 99–514] to which such amendment relates.”
Effective Date
of 1988 AmendmentAmendment by section 1018(t)(7)(A) of Pub. L. 100–647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99–514, to which such amendment relates, see section 1019(a) of Pub. L. 100–647, set out as a note under section 1 of this title. Amendment by section 3011(b)(1) of Pub. L. 100–647 applicable to taxable years beginning after Dec. 31, 1988, but not applicable to any plan for any plan year to which section 162(k) of this title (as in effect on the day before Nov. 10, 1988) did not apply by reason of section 10001(e)(2) of Pub. L. 99–272, see section 3011(d) of Pub. L. 100–647, set out as a note under section 162 of this title.
Effective Date
of 1986 AmendmentAmendment by section 1114(b)(1) of Pub. L. 99–514 applicable to years beginning after Dec. 31, 1986, see section 1114(c)(1) of Pub. L. 99–514, set out as a note under section 414 of this title. Amendment by section 1151(j)(2) of Pub. L. 99–514 applicable, with certain qualifications and exceptions, to years beginning after Dec. 31, 1988, see section 1151(k) of Pub. L. 99–514, as amended, set out as a note under section 79 of this title. Pub. L. 99–272, title X, § 10001(e), Apr. 7, 1986, 100 Stat. 227, provided that: “(1) General rule.—The
Amendments
made by this section [amending this section and section 162 of this title] shall apply to plan years beginning on or after July 1, 1986. “(2) Special rule for collective bargaining agreements.—In the case of a group health plan maintained pursuant to one or more collective bargaining agreements between employee representatives and one or more employers ratified before the date of the enactment of this Act [Apr. 7, 1986], the
Amendments
made by this section shall not apply to plan years beginning before the later of—“(A) the date on which the last of the collective bargaining agreements relating to the plan terminates (determined without regard to any extension thereof agreed to after the date of the enactment of this Act), or “(B) January 1, 1987. For purposes of subparagraph (A), any plan amendment made pursuant to a collective bargaining agreement relating to the plan which amends the plan solely to conform to any requirement added by this section shall not be treated as a termination of such collective bargaining agreement.”
Regulations
Secretary of the Treasury or his delegate to issue before Feb. 1, 1988, final
Regulations
to carry out
Amendments
made by section 1114 of Pub. L. 99–514, see section 1141 of Pub. L. 99–514, set out as a note under section 401 of this title. Non
Enforcement
of Amendment Made by section 1151 of Pub. L. 99–514 for Fiscal Year 1990No monies appropriated by Pub. L. 101–136 to be used to implement or enforce section 1151 of Pub. L. 99–514 or the
Amendments
made by such section, see section 528 of Pub. L. 101–136, set out as a note under section 89 of this title. Plan
Amendments
Not Required Until January 1, 1989For provisions directing that if any
Amendments
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.
Reference
Citations & Metadata
Citation
26 U.S.C. § 106
Title 26 — Internal Revenue Code
Last Updated
Apr 5, 2026
Release point: 119-73not60