IRS Revises Certain Annual Limits Due to Tax Reform Legislation

In the last edition of Compliance Corner, we announced that the IRS had decreased the maximum HSA contribution for family coverage in 2018 from $6,900 to $6,850. This was one of several adjustments needed to be made to inflation amounts due to changes made in the Tax Cuts and Jobs Act (2017 tax reform). Two of the other adjusted limits announced in Rev. Proc. 2018-18 (as part of Bulletin 2018-10) on March 5, 2018 were the adoption assistance exclusion/adoption credit and the small business health care tax credit.

Under an employer-sponsored adoption assistance program, an employee may exclude up to $13,810 from gross income in 2018 for the adoption of a child. This is a decrease from the previously announced amount of $13,840. Employers with such a program will need to revise program documentation and communicate the new limit to employees.

The small business health care tax credit is available to employers who have fewer than 25 full-time employees, including equivalents (FTEs), pay at least half of employee health insurance premiums and have an average annual wage below the maximum limit. The maximum limit for 2018 was previously $53,400 but is now $53,200. The revised limit shouldn't impact employer eligibility for the tax credit. This is because of the calculation used to determine an employer's average annual wage. After dividing the aggregate amount of wages paid by the employer by the number of FTEs, the employer is permitted to round down to the next lowest $1,000. Thus, regardless of whether the employer's average annual wage is $53,400 or $53,200, employers are permitted to round down to $53,000 and qualify.

Bulletin 2018-10 »