Qualified Health Savings Account Distribution Act of 2021
Bill: S.2113 | Sponsor: Sen. Sasse, Ben (R-NE)
Policy area: Taxation

Summary:
Qualified Health Savings Account Distribution Act of 2021
This bill modifies the rules for using a conversion or termination of a flexible spending account or a health reimbursement arrangement to establish a health savings account.

To amend the Internal Revenue Code of 1986 to expand permissible 
 distributions from an employee's health flexible spending account or 
   health reimbursement arrangement to their health savings account.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Qualified Health Savings Account 
Distribution Act of 2021''.

SEC. 2. FSA AND HRA TERMINATIONS OR CONVERSIONS TO FUND HSAS.

    (a) In General.--Section 106(e)(2) of the Internal Revenue Code of 
1986 is amended to read as follows:
            ``(2) Qualified hsa distribution.--For purposes of this 
        subsection--
                    ``(A) In general.--The term `qualified HSA 
                distribution' means, with respect to any employee, a 
                distribution from a health flexible spending 
                arrangement or health reimbursement arrangement of such 
                employee directly to a health savings account of such 
                employee if--
                            ``(i) such distribution is made in 
                        connection with such employee establishing 
                        coverage under a high deductible health plan 
                        (as defined in section 223(c)(2)) after a 
                        significant period of not having such coverage, 
                        and
                            ``(ii) such arrangement is described in 
                        section 223(c)(1)(B)(iii) with respect to the 
                        portion of the plan year after such 
                        distribution is made.
                    ``(B) Dollar limitation.--The aggregate amount of 
                distributions from health flexible spending 
                arrangements and health reimbursement 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 
                exceed an amount equal to the sum of--
                            ``(i) the dollar amount in effect under 
                        section 125(i)(1) (twice such amount in the 
                        case of coverage which is described in section 
                        223(b)(2)(B)), plus
                            ``(ii) an amount equal to the maximum 
                        unused amounts remaining at the end of a plan 
                        year in a health flexible spending arrangement 
                        which are permitted to be paid or reimbursed to 
                        plan participants for qualified medical 
                        expenses incurred during the following plan 
                        year, as provided in Internal Revenue Service 
                        Notice 2013-71 (as in effect on the date of the 
                        enactment of the Qualified Health Savings 
                        Account Distribution Act of 2021).''.
    (b) Conversion to HSA-Compatible Arrangement for Remainder of Plan 
Year.--Section 223(c)(1)(B)(iii) of such Code is amended to read as 
follows:
                            ``(iii) coverage under a health flexible 
                        spending arrangement or health reimbursement 
                        arrangement for the portion of the plan year 
                        after a qualified HSA distribution (as defined 
                        in section 106(e)(2), determined without regard 
                        to subparagraph (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, and''.
    (c) Inclusion of Qualified HSA Distributions on W-2.--
            (1) In general.--Section 6051(a) of such Code is amended by 
        striking ``and'' at the end of paragraph (16), by striking the 
        period at the end of paragraph (17) and inserting ``, and'', 
        and by inserting after paragraph (17) the following new 
        paragraph:
            ``(18) the amount of any qualified HSA distribution (as 
        defined in section 106(e)(2)) with respect to such employee.''.
            (2) Conforming amendment.--Section 6051(a)(12) of such Code 
        is amended by inserting ``(other than any qualified HSA 
        distribution, as defined in section 106(e)(2))'' before the 
        comma at the end.
    (d) Effective Date.--The amendments made by this section shall 
apply to distributions made after December 31, 2021, in taxable years 
ending after such date.
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