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Bush signs tax bill with HSA changes

Posted On: Dec. 20, 2006 12:00 AM CST

WASHINGTON--President Bush on Wednesday signed into law tax legislation that will significantly boost the appeal of health savings accounts.

The HSA provisions, incorporated in the broader tax bill H.R. 6111 that received congressional approval earlier this month during the brief post-election session, will allow significantly larger contributions to HSAs and will ease interaction problems related to flexible spending account grace periods and HSAs.

In the most significant change--effective next year--the maximum annual contribution that can be made to an HSA will be a statutory indexed amount, which in 2007 will be $2,850 for single coverage and $5,650 for family coverage.

That is a change from prior law in which the maximum contribution was the health plan deductible or the statutory amount, whichever was less.

Additionally, the new law paves the way for employers to replace first-generation consumer-driven health care plans with HSAs by allowing the rollover of health reimbursement arrangement balances to HSAs.

The new law also will ensure that the maximum contributions can be made to employees' HSAs, regardless of when during a plan year they became eligible for coverage. Previously, contributions had to be pro-rated to reflect when during the year an employee became eligible for HSA coverage.