IRS Announcement2018 HSA Contribution Limits Remain at $6,900 for individuals with family HDHP coverage

7/5/2018 - By Judy Fryer

On May 4, 2017, the IRS announced that the maximum family coverage contribution limit to a Health Savings Account (HSA) for 2018 was $6,900.

However, on March 5, 2018, the IRS announced that the $6,900 was reduced to $6,850 due to changes to the indexing provisions outlined in the Tax Cuts and Jobs Act.

This announcement caused many HSA beneficiaries who had fully funded their accounts at the beginning of 2018 to find that they had over-contributed, through no fault of their own. Rules that govern removing excess contributions and any earnings are complicated and beneficiaries who may have elected the original annual limit had per pay amounts that now needed to be changed.

On April 26, 2018, the IRS released Revenue Procedure 2018-27, which allowed HSA beneficiaries who elected the maximum family coverage contribution of $6,900 for 2018 to treat it as the annual limit on contributions for those with family coverage.

If an account holder had made a distribution from an HSA of an excess contribution (with earnings) based on the $6,850 deduction limit, they may repay the distribution and treat it as the result of a mistake due to reasonable cause.

Two methods of funding HSAs

Contributions may be added to taxpayers’ HSAs on either a pre-tax or post-tax basis. If the taxpayer does not pay back the mistaken distribution, the tax consequences are different depending on how the HSAs are funded, whether by pre-tax or post-tax contributions.

Pre-tax contributions are generally made through a cafeteria plan payroll election that lowers your taxable wages. Post-tax contributions are those sent directly to the HSA custodian or through payroll from your net paycheck (i.e., they do not lower your taxable wages). You will generally be taking the contributions as an above-the-line deduction on your tax filing.

Why does this matter?

If a beneficiary removed their HSA annual contributions (with earnings) and did not repay the distribution, this could trigger a taxable event.

Under Revenue Procedure 2018-27, individuals who fund their HSAs with post-tax dollars are given the option to leave or return the extra $50 to their HSAs and will not suffer any negative tax consequences regardless of their decision.

If the HSA is funded with pre-tax dollars the extra $50 needs to be returned in a timely manner, or kept in the HSA and used for qualified medical expense to avoid negative tax consequences.

If you have further questions on this topic or others related to Flexible Spending Plans, please email me! I look forward to helping you.

About the Author | Judy Fryer
Judy is a manager in the Retirement & Medical Plans Department of Saltmarsh, Cleaveland & Gund. She has been practicing in this field since 1982 and has significant management, medical billing, CPT and ICD9 coding experience. Judy is a Certified Section 125 Administrator through the HR certification Section 125 training program and remains compliant with HIPAA training and active membership with the Employee Benefits Institution of America (EBIA).

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