Flexible Savings Arrangements for a Healthy Robust America Act
The Flexible Savings Arrangements for a Healthy Robust America Act would modify the IRS code to let an employee transfer or distribute money from a health flexible spending arrangement (FSA) or a health reimbursement arrangement (HRA) directly into a health savings account (HSA) when the employee begins coverage under a high deductible health plan (HDHP). This “qualified HSA distribution” would be limited by a dollar cap tied to the existing limits on tax-favored health accounts, and it would be integrated with changes to HSA contribution rules to reflect the new distribution. The bill also requires reporting of these qualified distributions on an employee’s W-2 and provides a mechanism to convert the remainder of the plan year into an HSA-friendly arrangement. The effective date applies to distributions made after December 31, 2025. In essence, the bill aims to make it easier for people who currently have FSA or HRA funds to seed or supplement their HSA when they switch to an HDHP, leveraging pre-tax dollars to fund HSAs and reducing barriers to moving toward HDHP/HSA combinations.
Key Points
- 1Qualified HSA distributions from FSA or HRA to an HSA: Allows a direct transfer of funds to an HSA when an employee is establishing HDHP coverage after a period without such coverage, provided the FSA/HRA is aligned with HDHP rules for the portion of the year after the distribution.
- 2Dollar cap on distributions: The total amount that can be treated as a qualified HSA distribution is limited to the amount defined by section 125(i)(1) (twice that amount if the HDHP coverage is the family type described in section 223(b)(2)(B)).
- 3Interaction with HSA deduction limits: The bill adds a new provision tying part of any qualified HSA distribution to the balance increases in the contributing FSA/HRA, effectively limiting how much of the HSA deduction can be offset by these distributions based on how much the FSA/HRA balance rose before the distribution.
- 4Conversion for the remainder of the plan year: After a qualified HSA distribution, the remainder of the plan year can be treated as coverage under an FSA/HRA that would be eligible under the HDHP/HSA framework if applied to the entire year.
- 5Reporting on W-2s: The value of any qualified HSA distribution would be included on the employee’s W-2, ensuring proper tax reporting.
- 6Effective date: These rules apply to distributions made after December 31, 2025, for taxable years ending after that date.