# 26 U.S.C. § 106: Contributions by employer to accident and health plans

Source: OLRC release point 119-134 <https://uscode.house.gov/us/usc/119-134/t26/s106>. Cite pinpoints as 26 U.S.C. § 106(a)(1).

## § 106(a) General rule

Except as otherwise provided in this section, gross income of an employee does not include employer-provided coverage under an accident or health plan.

## § 106(b) Contributions to Archer MSAs

**§ 106(b)(1) In general.** In the case of an employee who is an eligible individual, amounts contributed by such employee’s employer to any Archer MSA of such employee shall be treated as employer-provided coverage for medical expenses under an accident or health plan to the extent such amounts do not exceed the limitation under section 220(b)(1) (determined without regard to this subsection) which is applicable to such employee for such taxable year.

**§ 106(b)(2) No constructive receipt.** No amount shall be included in the gross income of any employee solely because the employee may choose between the contributions referred to in paragraph (1) and employer contributions to another health plan of the employer.

**§ 106(b)(3) Special rule for deduction of employer contributions.** Any employer contribution to an Archer MSA, if otherwise allowable as a deduction under this chapter, shall be allowed only for the taxable year in which paid.

**§ 106(b)(4) Employer MSA contributions required to be shown on return.** Every individual required to file a return under section 6012 for the taxable year shall include on such return the aggregate amount contributed by employers to the Archer MSAs of such individual or such individual’s spouse for such taxable year.

**§ 106(b)(5) MSA contributions not part of COBRA coverage.** Paragraph (1) shall not apply for purposes of section 4980B.

**§ 106(b)(6) Definitions.** For purposes of this subsection, the terms “eligible individual” and “Archer MSA” have the respective meanings given to such terms by section 220.

**§ 106(b)(7) Cross reference.** For penalty on failure by employer to make comparable contributions to the Archer MSAs of comparable employees, see section 4980E.

## § 106(c) Inclusion of long-term care benefits provided through flexible spending arrangements

**§ 106(c)(1) In general.** Gross income of an employee shall include employer-provided coverage for qualified long-term care services (as defined in section 7702B(c)) to the extent that such coverage is provided through a flexible spending or similar arrangement.

**§ 106(c)(2) Flexible spending arrangement.** For purposes of this subsection, a flexible spending arrangement is a benefit program which provides employees with coverage under which—

**§ 106(c)(2)(A)** specified incurred expenses may be reimbursed (subject to reimbursement maximums and other reasonable conditions), and

**§ 106(c)(2)(B)** the maximum amount of reimbursement which is reasonably available to a participant for such coverage is less than 500 percent of the value of such coverage.

In the case of an insured plan, the maximum amount reasonably available shall be determined on the basis of the underlying coverage.

## § 106(d) Contributions to health savings accounts

**§ 106(d)(1) In general.** In the case of an employee who is an eligible individual (as defined in section 223(c)(1)), amounts contributed by such employee’s employer to any health savings account (as defined in section 223(d)) of such employee shall be treated as employer-provided coverage for medical expenses under an accident or health plan to the extent such amounts do not exceed the limitation under section 223(b) (determined without regard to this subsection) which is applicable to such employee for such taxable year.

**§ 106(d)(2) Special rules.** Rules similar to the rules of paragraphs (2), (3), (4), and (5) of subsection (b) shall apply for purposes of this subsection.

**§ 106(d)(3) Cross reference.** For penalty on failure by employer to make comparable contributions to the health savings accounts of comparable employees, see section 4980G.

## § 106(e) FSA and HRA terminations to fund HSAs

**§ 106(e)(1) In general.** A plan shall not fail to be treated as a health flexible spending arrangement or health reimbursement arrangement under this section or section 105 merely because such plan provides for a qualified HSA distribution.

**§ 106(e)(2) Qualified HSA distribution.** The term “qualified HSA distribution” means a distribution from a health flexible spending arrangement or health reimbursement arrangement to the extent that such distribution—

**§ 106(e)(2)(A)** does not exceed the lesser of the balance in such arrangement on September 21, 2006, or as of the date of such distribution, and

**§ 106(e)(2)(B)** is contributed by the employer directly to the health savings account of the employee before January 1, 2012.

Such term shall not include more than 1 distribution with respect to any arrangement.

**§ 106(e)(3) Additional tax for failure to maintain high deductible health plan coverage.**

**§ 106(e)(3)(A) In general.** If, at any time during the testing period, the employee is not an eligible individual, then the amount of the qualified HSA distribution—

**§ 106(e)(3)(A)(i)** shall be includible in the gross income of the employee for the taxable year in which occurs the first month in the testing period for which such employee is not an eligible individual, and

**§ 106(e)(3)(A)(ii)** the tax imposed by this chapter for such taxable year on the employee shall be increased by 10 percent of the amount which is so includible.

**§ 106(e)(3)(B) Exception for disability or death.** Clauses (i) and (ii) of subparagraph (A) shall not apply if the employee ceases to be an eligible individual by reason of the death of the employee or the employee becoming disabled (within the meaning of section 72(m)(7)).

**§ 106(e)(4) Definitions and special rules.** For purposes of this subsection—

**§ 106(e)(4)(A) Testing period.** The term “testing period” means the period beginning with the month in which the qualified HSA distribution is contributed to the health savings account and ending on the last day of the 12th month following such month.

**§ 106(e)(4)(B) Eligible individual.** The term “eligible individual” has the meaning given such term by section 223(c)(1).

**§ 106(e)(4)(C) Treatment as rollover contribution.** A qualified HSA distribution shall be treated as a rollover contribution described in section 223(f)(5).

**§ 106(e)(5) Tax treatment relating to distributions.** For purposes of this title—

**§ 106(e)(5)(A) In general.** A qualified HSA distribution shall be treated as a payment described in subsection (d).

**§ 106(e)(5)(B) Comparability excise tax.**

**§ 106(e)(5)(B)(i) In general.** Except as provided in clause (ii), section 4980G shall not apply to qualified HSA distributions.

**§ 106(e)(5)(B)(ii) Failure to offer to all employees.** In the case of a qualified HSA distribution to any employee, the failure to offer such distribution to any eligible individual covered under a high deductible health plan of the employer shall (notwithstanding section 4980G(d)) be treated for purposes of section 4980G as a failure to meet the requirements of section 4980G(b).

## § 106(f) Reimbursements for menstrual care products

For purposes of this section and section 105, expenses incurred for menstrual care products (as defined in section 223(d)(2)(D)) shall be treated as incurred for medical care.

## § 106(g) Qualified small employer health reimbursement arrangement

For purposes of this section and section 105, payments or reimbursements from a qualified small employer health reimbursement arrangement (as defined in section 9831(d)) of an individual for medical care (as defined in section 213(d)) shall not be treated as paid or reimbursed under employer-provided coverage for medical expenses under an accident or health plan if for the month in which such medical care is provided the individual does not have minimum essential coverage (within the meaning of section 5000A(f)).

## Regulations

- [Treas. Reg. § 1.106-1](/26/reg/1.106-1.md): Contributions by employer to accident and health plans. (interprets § 106)

## Final rules

- [79 FR 26838](https://www.federalregister.gov/documents/2014/05/12/2014-10849/tax-treatment-of-qualified-retirement-plan-payment-of-accident-or-health-insurance-premiums) (2014): Tax Treatment of Qualified Retirement Plan Payment of Accident or Health Insurance Premiums

## Leading cases

- [Adkins v. United States, 882 F.2d 1078 (6th Cir. 1989)](https://www.courtlistener.com/opinion/527846/alpha-adkins-v-united-states/)
- [DKD Enterprises v. Commissioner, 685 F.3d 730 (8th Cir. 2012)](https://www.courtlistener.com/opinion/804490/dkd-enterprises-v-commissioner-of-irs/)

## Connections

Cites: § 72 Annuities; certain proceeds of endowment and life insurance contracts; § 105 Amounts received under accident and health plans; § 213 Medical, dental, etc., expenses; § 220 Archer MSAs; § 223 Health savings accounts; § 4980B Failure to satisfy continuation coverage requirements of group health plans; § 4980E Failure of employer to make comparable Archer MSA contributions; § 4980G Failure of employer to make comparable health savings account contributions; § 5000A Requirement to maintain minimum essential coverage; § 6012 Persons required to make returns of income; § 7702B Treatment of qualified long-term care insurance; § 9831 General exceptions

Cited by: § 104 Compensation for injuries or sickness; § 125 Cafeteria plans; § 220 Archer MSAs; § 223 Health savings accounts; § 3131 Credit for paid sick leave; § 3132 Payroll credit for paid family leave; § 3134 Employee retention credit for employers subject to closure due to COVID–19; § 3231 Definitions; § 3306 Definitions; § 3401 Definitions; § 4973 Tax on excess contributions to certain tax-favored accounts and annuities; § 6041 Information at source; § 6051 Receipts for employees

## Amendments

- 1954-08-16: [Act Aug. 16, 1954, ch. 736](/26/act/1954-ch736.md), 68A Stat. 32
- 1986-04-07: [Pub. L. 99-272](/26/act/99-272.md), 100 Stat. 223
- 1986-10-22: [Pub. L. 99-514](/26/act/99-514.md), 100 Stat. 2450
- 1988-11-10: [Pub. L. 100-647](/26/act/100-647.md), 102 Stat. 3589
- 1989-12-19: [Pub. L. 101-239](/26/act/101-239.md), 103 Stat. 2432
- 1996-08-21: [Pub. L. 104-191](/26/act/104-191.md), 110 Stat. 2048
- 2000-12-21: [Pub. L. 106-554](/26/act/106-554.md), 114 Stat. 2763
- 2003-12-08: [Pub. L. 108-173](/26/act/108-173.md), 117 Stat. 2476
- 2006-12-20: [Pub. L. 109-432](/26/act/109-432.md), 120 Stat. 2948
- 2010-03-23: [Pub. L. 111-148](/26/act/111-148.md), 124 Stat. 854
- 2014-12-19: [Pub. L. 113-295](/26/act/113-295.md), 128 Stat. 4039
- 2016-12-13: [Pub. L. 114-255](/26/act/114-255.md), 130 Stat. 1341
- 2020-03-27: [Pub. L. 116-136](/26/act/116-136.md), 134 Stat. 416