At the end of April 2018 the Internal Revenue Service (IRS) announced that the 2018 annual contribution limit to Health Savings Accounts (HSAs) for persons with family coverage under a qualifying High Deductible Health Plan (HDHP) is restored to $6,900.
This follows a confusing series of IRS actions whereby in May 2017 the IRS announced in Revenue Procedure 2017-37 that the 2018 family-coverage contribution limit for HSAs would be $6,900, but in March 2018 they announced the 2018 family limit was reduced by $50, from $6,900 to $6,850.
As the current tax year was already in progress, this change would have entailed HSA trustees to implement fixes to their systems. The IRS listened to appeals from the industry, and has now reinstated the original 2018 family limit of $6,900.
An HSA is a tax-exempt savings account employees can use to pay for qualified health expenses. To be eligible to contribute to an HSA an employee must be covered by a qualified high deductible health plan (HDHP); must not have any disqualifying health coverage; must not be enrolled in Medicare and not be claimed as a dependent on someone else’s tax return.
Chatrane Birbal - senior advisor of government relations at the Society for Human Resource Management – stated:
“SHRM applauds the new IRS guidance to allow employees with family coverage under a high-deductible health plan to proceed in contributing up to $6,900 to an HAS. The abrupt announcement earlier this year to lower the 2018 contribution level to $6,850 created confusion for employees and an administrative burden on employers that offer HSAs, especially since benefit offerings were solidified last year. Some employers had already begun making the necessary changes to comply with the IRS earlier guidance, which required employers to update payroll systems and revise employee benefit communications, among a number of other systematic updates."
Information will be available to employers from HSA administrators or trustees regarding any updates they will require for their payroll systems. However, some HSA administrators had not introduced the changes as they were hopeful that the IRS would restore the original limit.
Ryan McCostlin - a team member at Bernard Health, a benefits brokerage and HR software company in Nashville, Tennessee – said:
"Generally, employees who over-contribute to an HSA and don't correct it will get hit with a 6 percent excise tax. Most people who maxed out their HSA contribution schedule early in the year probably didn't do anything after getting an e-mail from HR notifying them that the 2018 limit had been reduced back in March, and they would have been hit with an excise tax if not for this most recent change. The good news for them is that as a result of their inaction they're back in a good spot!"
