On Monday, March 5th the IRS said in a service bulletin that it has recalculated the maximum amount that a family can contribute to a health savings account (HSA) in calendar year 2018, reducing it by $50 to $6,850. It had previously announced the 2018 figure would be increased to $6,900.
This change was made, effective immediately, to reflect the Tax Cuts and Jobs Act of 2017, signed into law on Dec. 22, 2017. The law ties HSA limits and other employee benefits such as health flexible spending accounts (FSA), commuter plans and adoption assistance benefits to the chained consumer price index (chained CPI), reflecting a change in the way it previously calculated cost-of-living increases.
The HSA contribution limit change only applies to family-level coverage, leaving the individual contribution limit for HSAs in 2018 at $3,450. FSA limits were also not affected.
2018 Contribution and Out-of-Pocket Limits
|HSA contribution limit (employer + employee)||Self-only: $3,450
|HSA catch-up contributions (age 55 or older)*||$1,000|
|HDHP minimum deductibles||Self-only: $1,350
|HDHP maximum out-of-pocket amounts (deductibles, co-payments and other amounts, but not premiums)||Self-only: $6,650
*IRS announced change on Monday, March 5, to the family HSA contribution limit.
Ensure your employees aren’t taxed for excess contributions
Any contribution to a family HSA account over $6,850 in 2018 will be considered an excess contribution, and will be hit by a 6 percent excise tax. To ensure that none of your employees are taxed in this way, you need to be able to identify those who have already contributed the maximum amount into a family account for 2018 (the excess contribution will need to be refunded). There is no grandfathering in for HSA accounts that were fully funded at $6,900 prior to the March 5, 2018 IRS notice.
There are two options for those that have already fully funded their family HSA account in 2018 at the previously announced 2018 amount of $6,900:
- Leave the full amount ($6,900) in the HSA account and include the $50 as other income and pay the penalty
- Take a distribution for HSA excess contribution for the $50, leaving the HSA balance at the new IRS family maximum of $6,850
You should also evaluate your employees’ payroll elections to determine if their contribution amounts need to be adjusted so that they don’t end up exceeding the annual limit.
In its recent bulletin, the IRS additionally defined a high-deductible health plan as a plan with an annual deductible that is not less than $1,350 for self-only coverage or $2,700 for family coverage, and the annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) do not exceed $6,650 for self-only coverage or $13,300 for family coverage. This definition has not changed since its previous announcement.
Stay up to date on the latest HSA news by following WEX Health on Twitter @wexhealthinc. And learn more about HSAs with our blog post that tells you everything you need to know about these tax-advantaged accounts.