IRS Reduces 2018 Family HSA Contribution Limit
On March 5, the IRS announced a change to the 2018 Family Health Savings Account (HSA) Contribution Limit: a $50 reduction to the amount they announced last year. People with family coverage will need to adjust their withholding amount if they were attempting to make the maximum allowable contribution to their HSA.
The IRS says they have recalculated the contribution limits due to a requirement by the Tax Cuts and Jobs Act to use chained consumer price index (chained CPI) for determining HSA contribution limits. While individual limits remain unchanged, family limits went from $6,900 to $6,850.
Many employees use regular payroll deductions, which may be based on the allowable maximum contributions, to contribute to their HSAs. These employees will need to check their deduction amount to be sure they will not surpass the annual contribution limits. If they do surpass the limit, they may be hit with a tax penalty.
If an employee has already contributed $6,900 with a one-time, lump-sum payment, they will need to begin the process to receive a refund of the excess contribution. Again, if they contribute above the maximum allowable amount, they may be hit with a tax penalty.
If an employee discovers that they over-contributed, they have until they file their taxes next year in 2018 to remove the excess contributions and treat them as taxable income. If they do this, they will not be hit with a tax penalty.
Our team has a process for managing this change and is reaching out to our Payroll clients with guidance. For the full release from the IRS, please see the following: https://www.irs.gov/pub/irs-irbs/irb18-10.pdf