the employee was not covered under such 
a high deductible health plan, and 
‘‘(ii) such arrangement is described in 
section 223(c)(1)(B)(vi) with respect to 
any portion of the plan year remaining 
after such distribution is made, if such em-
ployee remains enrolled in such arrange-
ment. 
‘‘(B) DOLLAR
LIMITATION.—The aggre-
gate amount of distributions from health flexi-
ble spending arrangements and health reim-
bursement arrangements of any employee which 
may be treated as qualified HSA distributions 
in connection with an establishment of coverage 
described in subparagraph (A)(i) shall not ex-
ceed the dollar amount in effect under section 
125(i)(1) (twice such amount in the case of cov-
erage 
which 
is 
described 
in 
section 
223(b)(2)(B)).’’. 
(b) PARTIAL REDUCTION OF LIMITATION ON DE-
DUCTIBLE HSA CONTRIBUTIONS.—Section 223(b)(4) of 
such Code is amended by striking ‘‘and’’ at the end of 
subparagraph (B), by striking the period at the end of 
subparagraph (C) and inserting ‘‘, and’’, and by inserting 
after subparagraph (C) the following new subparagraph: 
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‘‘(D) so much of any qualified HSA dis-
tribution (as defined in section 106(e)(2)) made 
to a health savings account of such individual 
during the taxable year as does not exceed the 
aggregate increases in the balance of the ar-
rangement from which such distribution is 
made which occur during the portion of the 
plan year which precedes such distribution 
(other than any balance carried over to such 
plan year and determined without regard to any 
decrease in such balance during such portion of 
the plan year).’’. 
(c) CONVERSION TO HSA-COMPATIBLE ARRANGE-
MENT
FOR
REMAINDER
OF
PLAN
YEAR.—Section 
223(c)(1)(B) of such Code, as amended by this preceding 
provisions of this Act, is amended by striking ‘‘and’’ at 
the end of clause (iii), by striking the period at the end 
of clause (iv) and inserting ‘‘, and’’, and by adding at the 
end the following new clause: 
‘‘(v) coverage under a health flexible 
spending arrangement or health reimburse-
ment arrangement for the portion of the 
plan year after a qualified HSA distribu-
tion (as defined in section 106(e)(2) deter-
mined without regard to subparagraph 
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(A)(ii) thereof) is made, if the terms of 
such arrangement which apply for such 
portion of the plan year are such that, if 
such terms applied for the entire plan 
year, then such arrangement would not be 
taken into account under subparagraph 
(A)(ii) of this paragraph for such plan 
year.’’. 
(d) INCLUSION OF QUALIFIED HSA DISTRIBUTIONS 
ON W–2.— 
(1) IN
GENERAL.—Section 6051(a) of such 
Code, as amended by this preceding provisions of 
this Act, is amended by striking ‘‘and’’ at the end 
of paragraph (17), by striking the period at the end 
of paragraph (18) and inserting ‘‘, and’’, and by in-
serting after paragraph (18) the following new para-
graph: 
‘‘(19) the amount of any qualified HSA dis-
tribution (as defined in section 106(e)(2)) with re-
spect to such employee.’’. 
(2) 
CONFORMING
AMENDMENT.—Section 
6051(a)(12) of such Code is amended by inserting 
‘‘(other than any qualified HSA distribution, as de-
fined in section 106(e)(2))’’ before the comma at the 
end. 
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(e) EFFECTIVE DATE.—The amendments made by 
this subsection shall apply to distributions made after De-
cember 31, 2025, in taxable years ending after such date. 
Æ 
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