IRS Reverses Itself on HSA Family Deductible Limit for 2018

IRS Reverses Itself on HSA Family Deductible Limit for 2018

  • On May 1, 2018

Last week, the Internal Revenue Service (IRS) issued Revenue Procedure 2018-27 which allows taxpayers with family coverage under a qualified high deductible health plan (HDHP) to once again use $6,900 as the maximum allowable contribution limit to a health savings account (HSA)for the 2018 tax year.  Originally the IRS set the annual HSA contribution limit for family coverage at $6,900 on May 4, 2017, but the federal tax reform legislation enacted in December of 2017 changed the calculation used to establish this limit annually.  As a result, on March 2, 2018, it was reduced to $6,850 for taxpayers with family coverage under HDHPs.  However, recognizing that many HDHPs had already started their 2018 plan year with the old $6,900 and the mid-year change was causing consumer confusing, the IRS elected to provide relief on April 26, 2018.

This guidance allows taxpayers to continue to treat the 2018 limit as $6,900, with the caveat that the new formula for calculating HSA contribution limits will apply in 2019 and all future tax year.  For taxpayers who already received a distribution from an HSA of an excess contribution based on the change to the $6,850 deduction limit, the guidance clarifies that they may treat the distribution as a mistake and repay the HSA without any tax or reporting consequences.  It also explains how to handle distribution of an excess contribution (and earnings) based on the $6,850 deduction limit.

If you sponsor an HSA, please contact your HSA bank/administrator to ensure your employees’ contributions comply with the above guidance.