Thanks to the Tax Cuts and Jobs Act, the 2018 contribution limit for family coverage in a health savings account will be $6,850—not $6,900, as previously announced by the IRS.
The Society for Human Resource Management reports that the IRS has recalculated the limit because the tax law applies the so-called chained consumer price index to increases in HSA contribution limits, as well as to a few other employee benefit contribution limits.
Internal Revenue Bulletin No. 2018–10, released March 5, clarifies not just that change but others as well. While the annual tax-deductible HSA contribution limit for tax year 2018 will remain at $3,450 for HSA account holders with self-only coverage through a high-deductible health plan, it has been lowered to $6,850 for account holders with family coverage through a high-deductible plan.
There has been no change for 2018 for health care flexible spending accounts, transit and other benefit limits now linked to the chained CPI, which results in a slower increase in benefits or payments than the CPI-W, based on the substitutions consumers would make in response to rising prices of certain items.
Because these changes apply to tax year 2018, a blog post from Mark Stember, a partner in the Washington, D.C. office of law firm Kilpatrick Townsend, says, “employees contributing to an HSA should be informed of the reduced maximum limit, and adjustments in contributions for the remainder of 2018 may be needed.” The post adds, “Employees who have already contributed the maximum amount for 2018, such as a one-time HSA contribution from a beginning-of-the-year bonus payment, will need to receive a refund of the excess contribution.”
While the IRS has made such a mistake relatively easy to fix, it’s not something employees want to do. If they over contribute to an H.S.A. and don’t fix it, they’ll get hit with a 6 percent excise tax.
Edward Fensholt, senior vice president and director of compliance services at benefits brokerage and consultancy Lockton, suggests in an alert from the firm that employers configure their payroll systems “to ensure no more than $6,850 is contributed by year end.”
The change “was an unwelcome surprise to the employers who offer and administer these health plans,” Kathryn Wilber, senior counsel for health policy at the American Benefits Council in Washington, D.C., is quoted saying. Wilber adds, “”It may not seem like much, but this $50 difference creates a host of problems for employers and employees who contribute to the accounts.” Michael Cannon, director of health policy studies at Washington, D.C.’s Cato Institute, is quoted saying in an e-mail to SHRM Online, “It’s amusing to me that Republicans have been advocating increasing HSA contribution limits (as they should) yet managed to reduce them instead.”
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Please contact your Total Benefit Solutions, Inc account manager at (215)355-2121 if you have any further questions or concerns.