- 2018 HSA limits were originally published in May 2017, and established minimum deductible and maximum out-of-pocket expense amounts for qualified high deductible health plans for tax year 2018.
- Under tax reform, the IRS reduced the HSA limit by $50 for individuals with family coverage.
- The IRS rescinded the limit change after stakeholders communicated administrative burdens, and provided guidance for the treatment of excess distributions.
After reducing the contribution limit for health savings account (HSA) owners with family coverage by $50 for tax year 2018, the IRS has now overturned its decision and restored the originally communicated limit.
In May 2017, the IRS released Revenue Procedure 2017-37, which provided inflation-adjusted amounts relating to HSAs. This publication announced HSA contribution limits, and established minimum deductible and maximum out-of-pocket expense amounts for qualified high deductible health plans (HDHPs) for tax year 2018.
When the Tax Cuts and Jobs Act was passed and signed into law at the end of 2017, the "Chained Consumer Price Index" was used to determine inflation-adjusted amounts. As a result, on March 5, 2018, the IRS released Revenue Procedure 2018-18, in which the annual tax-deductible contribution limit to HSAs under Section 223(b)(2)(B) for individuals with family coverage was reduced from $6,900 to $6,850 for tax year 2018. No changes were made to the contribution limit to HSAs for individuals with self-only coverage.
In response to this guidance, many comments were submitted to the Treasury Department and IRS, asserting that the reduction of the contribution limit would undeniably cause both administrative and financial burdens on individuals and service providers. Additionally, consideration was required for individuals who had already reached the $6,900 limit for the 2018 tax year, and relief was requested.
IRS restores originally communicated limit, provides guidance for excess distributions
In response, the IRS issued Revenue Procedure 2018-27 on April 26, 2018, which provided relief through yet another change to the IRS HSA contribution limit for individuals with family coverage. In this communication, the IRS announced that individuals may treat $6,900 as the annual tax-deductible contribution for tax year 2018.
The publication also provides guidance relating to taxpayers who had reached the maximum contribution amount prior to the limit decrease, and subsequently took a distribution of the excess $50. In such instance, there are two options:
- Individuals may repay the distribution to the HSA. If repayment is made by April 15, 2019, the amount is not included in gross income, not subject to the 20 percent additional tax on excess contributions, and is not required to be reported on Form 1099-SA or Form 8889. However, a trustee or custodian is not required to allow repayment of a mistaken distribution.
- Individuals who are not allowed to, or choose not to, repay the amount can rely on code section 223(f)(3), which provides for the removal of an excess contribution from an HSA, treating the amount as not includible in gross income nor subject to the 20 percent additional tax, when received prior to the individual’s tax filing deadline.
Employers should be aware of the latest news relating to HSA tax-deductible contribution limits, and communicate the information to employees who utilize this benefit.