IRS Issues 2018 Cost-of-Living Adjustments for Inflation

On Oct. 19, 2017, the IRS issued Revenue Procedure 2017-58, which relates to certain cost-of-living adjustments for a wide variety of tax-related items, including transportation benefits, qualified parking benefits, health FSAs, QSEHRAs and other limitations for tax year 2018.

According to the revenue procedure, the annual limit on employee contributions to a health FSA will be $2,650 for plan years beginning in 2018 (up $50 from 2017).

Some changes impact the small business health care tax credit, since the maximum credit is phased out based on the employer’s number of full-time equivalent employees in excess of 10. For 2018, the average annual wage level at which the credit phases out for small employers is $26,700 (up $500 from 2017). The maximum average annual wages to qualify for the credit as an “eligible small employer” for 2018 will be $53,400 (a $1,000 increase from the 2017 amount).

A relatively new option for certain small employers is the Qualified Small Employer HRA (QSEHRA). For 2018, the maximum amount of reimbursements under a QSEHRA may not exceed $5,050 for self-only coverage and $10,250 for family coverage (an increase from $4,950 and $10,050 in 2017).

Another change is that the maximum amount an employee may exclude from his or her gross income under an employer-provided adoption assistance program for the adoption of a child will be $13,840 for 2018 (a $270 increase from the 2017 maximum of $13,570).

Regarding qualified transportation fringe benefits, the monthly limit on the amount that may be excluded from an employee’s income for qualified parking benefits increases to $260 in 2018 (from $255 in 2017). The combined monthly limit for transit passes and vanpooling expenses also increases to $260 in 2018 (up from $255 in 2017).

Sponsors and administrators of benefits with limits that are changing (i.e., adoption assistance plans, health FSA, transportation fringe benefits) will need to determine whether their plans automatically apply the latest limits or must be amended (if desired) to recognize the changes. Any changes in limits should also be communicated to employees.

NFP has updated the Employee Benefits Annual Limits white paper to reflect these changes. Please ask your advisor for a copy.

IR-2017-178 »
Rev. Proc. 2017-58 »