The arrangement must be funded solely by the employer, with no salary reduction contributions
. The amount of payments and reimbursements is limited per eligible employee to $5,050 per year (in 2018) for self-only coverage and $10,250 for family coverage.
While in many cases the insurance company issuing the policy itself may be liable for the tax (in the case of fully-insured coverage), the employer will become liable in the case of employer or salary reduction contributions
to a health savings account (HSA) or health flexible spending account (FSA) that it administers.
When officials asked for comments on changing the use-it-or-lose-it rule in that notice, commenters said a change could simplify health FSA administration, and make FSA programs more attractive to low-income and moderate-income workers, who "are more reluctant than others to participate because of aversion to even modest forfeitures of their salary reduction contributions
," officials said.
The $2,500 limit applies only to salary reduction contributions
, not to employer nonelective contributions (i.e., flex credits).
An employee who had an existing annuity contract with a company that was no longer eligible to issue new policies was allowed to continue making salary reduction contributions
on such contract provided the company signed an information sharing agreement with University.
(3) The effect of this requirement is that salary reduction contributions
to a tax sheltered annuity must be immediately vested.
* A limit of $16,500 in 2009 and 2010, which also includes total salary reduction contributions
to Section 401(k) Plans, Simplified Employee Pension Plans and SIMPLE IRAs.
* Nondiscrimination requirements must be in place, including a "universal availability" requirement (i.e., virtually all employees must be permitted to make salary reduction contributions
if any are permitted to do so).
Under the Code and regulations, the employer may take into account certain 401(k) salary reduction contributions
and certain employer plan contributions in meeting this test.
90-24, and (2) so-called "orphan" contracts into which salary reduction contributions
were being made in the past but no longer are being made.
Salary reduction contributions
are subject to Social Security, Medicare, and unemployment (FUTA) taxes.