The IRS has released a change to HSA contribution limits linked to family coverage for 2018 that will impact anyone with a high-deductible family plan who is making the maximum contribution to their HSA account.
What do the HSA Contribution Limits Look Like Now?
In 2018, the HSA contribution limit linked to family coverage, which was originally set as $6,900, has been reduced to $6,850. This was recalculated due to the Tax Cuts and Jobs Act that was passed in 2017 which applies the chained CPI (Consumer Price Index) to increase HSA and other contribution limits.
According to SHRM, in its Internal Revenue Bulletin No. 2018–10, released March 5, the IRS clarified that:
- For HSAs, the annual tax-deductible contribution limit for tax year 2018 will stay at $3,450 for HSA account holders with self-only coverage through a high-deductible health plan but has been lowered to $6,850 for account holders with family coverage through a high-deductible plan.
- For employer adoption assistance programs, the maximum amount that can be excluded from an employee’s gross income for qualified adoption expenses is reduced to $13,810 from $13,840. Also, the adjusted gross income threshold after which the adoption exclusion begins to phase out is reduced to $207,140 from $207,580.
- Health care flexible spending accounts (FSAs), transit and other benefit limits now linked to the chained CPI were not affected for 2018.
Why is this Important?
The reduction in the contribution limit is an unwelcome surprise for employers who offer HSA-compatible plans to their employees. An over contribution, if not corrected before employees file their 2018 taxes, could result in the employee being hit with a 6% excise tax. Contribution limits can be set in your payroll software. If you’re unsure of how to do this, please contact one of our payroll specialists today.
What do I do Now?
For employees who have their contributions deducted during each pay period, it’s advised that they reach out to their payroll specialist and request that an adjustment be made to their deduction to ensure they don’t over-deduct throughout the year.
For those who have already over contributed based on what the previous maximum contribution limit was set at (such as a one-time HSA contribution) they will need to work with their payroll specialist to receive a refund of the excess contribution.
If you have questions relating to your business benefit program and how this HSA modification will impact you or your employees, please don’t hesitate to contact our Human Resource Consulting expert today!
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