IRS Reverses Itself on HSA Family Deductible Limit for 2018

IRS Reverses Itself on HSA Family Deductible Limit for 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.