On March 5, 2018, the Internal Revenue Service (IRS) announced that the maximum 2018 contribution limit for health savings accounts (HSAs) for family coverage is reduced by $50, from $6,900.00 to $6,850.00. There is no change to the annual contribution limit ($3,450) on HSAs for individuals with self-only coverage through a high deductible health plan HDHP). The family maximum change and other benefit amount changes are in Rev. Proc. 2018-18, which is in Internal Revenue Bulletin No. 2018–10. See below for changes affecting maximum amounts under adoption assistance programs and failure to file correct information returns.
Reduction in H.S.A. Annual Limit: Employer Actions Needed
Employers need to inform employees as soon as possible. It is unlikely at this time of year that employees have already contributed beyond the new $6,850.00 maximum. However, any employee who has should request –from the HSA administrator — a distribution of the excess in order to avoid a tax on that amount.
Employers also need to revise the maximum family limit in any BenAdmin (benefit administration) systems they use, and need to recalculate payroll deduction/reduction amounts for employees with family HDHP coverage who elected the original maximum contribution of $6,900 for 2018.
Reduction in Other Annual Benefit Limits
Other changes announced in Rev. Proc. 2018-18 include:
- Adoption assistance: The maximum amount excludable from an employee’s 2018 gross income is reduced by $30, from $13,840 to $13,810. This applies both to employer-provided adoption assistance programs (for adoption of any child) and to the exclusion from an individual’s income for amounts paid by the individual for adoption of a special needs child (not paid through an employer-provided adoption assistance program). The excludable amount begins to phase out for taxpayers with modified adjusted gross income above a specified threshold. This originally was $207,580; now it is reduced to $207,140.
- Maximum penalty for furnishing/filing incorrect information in Forms 1095/1094 B and C: The general penalty amount for 2018 remains at $270 per return, but the maximum overall penalty is reduced from $3,282,500 to $3,275,500. These amounts apply to 2018 forms, which will be furnished/filed in 2019.
Why did the IRS Retroactively Change these Benefit Limits?
It is unusual for the federal government to announce a change to benefit limits in March that is retroactive to January 1. (The HSA maximum contribution limits for 2018 originally were announced by the IRS in May 2017, in Rev. Proc. 2017-37.) The reason the IRS recalculated the limit is because the Tax Cuts and Jobs Act that was enacted at the end of 2017 applies the so-called chained consumer price index (chained CPI) to increases in HSA and a few other (but not all!) employee benefit contribution limits.
All other HSA and HDHP limits for 2018 remain the same. For more information , click here for a Leavitt article listing various benefit limits for 2018. (That article has been updated to reflect the $50 decrease in maximum family H.S.A. contribution for 2018.)