In the context of myHSA's terminology, the concept of "Normalized income" aligns seamlessly with referring to the widely-accepted industry-standard income. This particular term applies to the reasonable plan amount, which typically falls within the range of 10-15% of an individual's income. However, the accuracy of this rule lies in anchoring this calculation to the industry standard as opposed to the individual's actual earnings.

Consider a scenario where an individual claims to earn $500,000 annually. In a traditional approach, one might assume that the 10-15% calculation should be based on this $500,000 figure. However, the approach we take is that it should be calculated based on what you would pay a third-party to execute the same role. So, if you were to pay a third party $150,000 to hold this role, you would base the 10-15% limit off of that amount instead.

Using this approach ensures that the reasonable limit is fair and not based on a bias towards the owner or shareholder of the company.

Here is a document that explains this rule in more detail:

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