On April 26, 2018, the IRS announced (through Rev. Proc. 2018-27) that the 2018 HSA maximum family contribution is reverting back to the original $6,900. As reported in the March 6, 2018, edition of Compliance Corner, the IRS had previously announced a decreased limit of $6,850 (Rev. Proc. 2018-18).
In restating the original limit of $6,900, the IRS shared many reasons for the decision, including taxpayer complaints that the $50 limit reduction imposed “numerous unanticipated administrative and financial burdens” for those that had already maxed out their contributions before the reduction was announced, and administrators who had to modify their systems to reflect the reduction. Most interestingly, some stakeholders had pointed out the fact that Section 223 of the IRC requires the IRS to publish the annual inflation adjustments by June 1 of the preceding calendar year.
As a result of the new announcement, HSA eligible individuals with family coverage may now contribute up to $6,900 for 2018. Employers wanting to take advantage of the increased limit will need to make the appropriate adjustments in their payroll and benefits administration systems, if they had previously change the systems to reflect the $6,850 limit.
A further complication comes with the new announcement: Some employees had already maxed out the $6,900 before the March 5, 2018, reduction announcement. To help the employees avoid the 6 percent excise penalty tax for excess contributions, the employers already completed the corrective action of distributing the excess $50. Now, with the limit back at $6,900, that $50 is no longer considered an excess contribution. If the $50 was associated with employer contributions or employee pretax contributions, it would now be considered a nonqualified distribution, subject to a 20 percent excise penalty tax (plus income tax). To avoid the tax, the employees will need to work with the employer and HSA bank/trustee to repay the $50 to the HSA. The repayment will need to take place by April 15, 2019. Again, this last complication only applies to those employees who maxed out their contribution prior to March 5, 2018, due to employer or employee pretax contributions and whose employers had already refunded the excess $50 to them.
Rev. Proc. 2018-27 »