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HSA/FSA Benefit Year vs Calendar Year


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The IRS sets FSA and HSA limits based on calendar year.  Our benefit year is 10/1 to 9/30.  Can we setup our plans so the limits follow the benefit year rather than the calendar year?  I've not seen this done but have been told that our legal department has approved this process so long as we stay consistent.

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Legal departments are not necessarily a good source of information unless they have attorneys with specific focus or supplemental support. With that said, you can set up FSA and/or HSA plans to coincide with your benefit year.

However, you need to enforce the HSA contributions as calendar year limits. You need to make sure to limit HSA employer + employee contributions based on the current calendar year. The employee is ultimately responsible for excess contributions.

However, employer HSA contributions are irrevocable unless the employee was never eligible or the employer solely exceeded the yearly limit. If you make an over contribution by mistake, even if it results in an excess contribution, IRS guidance prohibits the return of the excess contribution and earnings to  the employer.

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Absolutely you can set up on the benefit year; no different than having a fiscal year 401(k) plan where you still have to watch the calendar year 401(k) deferral limits.

Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC
President
Qualified Plan Consultants, Inc.
46 Daggett Drive
West Springfield, MA 01089
413-736-2066
larrystarr@qpc-inc.com

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