Benefit News

IRS Revises 2018 HSA Contribution Limits

March 06, 2018

On March 5, 2018, the Internal Revenue Service (IRS) released Revenue Procedure 2018-18 within Revenue Bulletin 2018-10 to announce changes to certain tax limits for 2018, including a reduced contribution limit for health savings accounts (HSAs).

Separately, the IRS released Notice 2018-12 to provide transition relief for certain high deductible health plans (HDHP) that provide for male sterilization or male contraceptive coverage without a deductible, or below the minimum deductible required to constitute a high deductible health plan under Internal Revenue Code (Code) Section 223. Code Section 223 is the provision governing HSAs.

Revenue Procedure 2018-10

The new tax law enacted late last year-the Tax Cuts and Jobs Act-changed the consumer price index for making annual adjustments to the HSA limits. Based on this new index, the IRS lowered the HSA contribution limit for individuals with family coverage under an HDHP from $6,900 to $6,850. This change is effective for the 2018 calendar year. The IRS' other HSA and HDHP limits for 2018 remain the same.

The IRS originally announced the 2018 inflation-adjusted limits for HSAs and HDHPs back in May 2017. The following chart shows the HSA/HDHP limits for 2018, as adjusted for the IRS' recent guidance:

Type of Limit 2018
Original Limit
2018
Current LImit
Change
HSA Contribution Limit Self-only $3,450 $3,450 No change
Family $6,900 $6,850 Down $50
HSA Catch-up Contributions (not subject to adjustment for inflation) Age 55 or older $1,000 $1,000 No change
HDHP Minimum Deductible Self-only $1,350 $1,350 No change
Family $2,700 $2,700 No change
HDHP Maximum Out-of-pocket Expense Limit Self-only $6,650 $6,650 No change
Family $13,300 $13,300 No change

Additionally, Revenue Procedure 2018-18 contains the following provisions:

  • Employee Health Insurance Expense of Small Employers: For taxable years beginning in 2018, the dollar amount in effect under Code Section 45R(d)(3)(B) is $26,600. This amount is used under Code Section 45R(c) for limiting the small employer health insurance credit and under Code Section 45R(d)(1)(B) for determining who is an eligible small employer for purchases of the credit.
  • Medical Savings Accounts: For taxable years beginning in 2018, the term 'high deductible health plan' as defined in Code Section 220(c)(2)(A) means, for self-only coverage, a health plan that has an annual deductible that is not less than $2,300 and not more than $3,450, and under which the annual out-of-pocket expenses ... do not exceed $4,550, and for family coverage, a health plan that has an annual deductible that is not less than $4,550 and not more than $6,850, and under which the annual out-of-pocket expenses...do not exceed $8,400.
  • Adoption Assistance Programs: For taxable years beginning in 2018, under Code Section 137(a)(2), the amount that can be excluded from an employee's gross income for the adoption of a child with special needs is $13,810 ... [or] for other adoptions by the employee is $13,810. The amount excludable from an employee's gross income begins to phase out under Section 137(b)(2)(A) for taxpayers with modified adjusted gross income in excess of $207,140 and is completely phased out for taxpayers with modified adjusted gross income of $247,140 or more.

Revenue Notice 2018-12

This Notice clarifies that a health plan providing benefits for male sterilization or male contraceptives without a deductible, or with a deductible below the minimum deductible for an HDHP under Code Section 223(c)(2)(A), doesn't meet the requirements for an HDHP. Several states require benefits for male sterilization or male contraceptives to be provided without a deductible (as preventive care). Individuals, in turn, have enrolled in such plans, with the understanding that these plans qualify as HDHP coverage, and thus, with the understanding that they are HSA eligible individuals. To provide states with time to change their laws, accordingly, in response to this Notice, transition relief is provided for periods before 2020. For these periods, an individual will not be treated as failing to qualify as an HSA-eligible individual for purposes of Code Section 223.

Employer Action Steps

With respect to the change in the HSA contribution limit for 2018, employers with HDHPs should inform employees about the reduced HSA contribution limit for family HDHP coverage. Employees may need to change their HSA elections going forward to comply with the new limit. Also, any individuals with family HDHP coverage who have already contributed $6,900 for 2018 must receive a refund of the excess contribution in order to avoid an excise tax.

Employers covering male sterilization or male contraceptive service benefits in their HDHPs without a deductible, or at a deductible that is below the deductible limit for HDHPs, should revisit their plan design to ensure their health plan maintains their status as a HDHP.

More Information

Internal Revenue Bulletin No. 2018-10, containing Revenue Procedure 2018-18 can be found here, while Notice 2018-12 is available here.

For additional information, please contact your Burnham Benefits Consultant or Burnham Benefits at 949-833-2983 or inquiries@burnhambenefits.com.


Burnham Benefits does not engage in the practice of law and this publication should not be construed as the providing of legal advice or a legal opinion of any kind. The consulting advice we provide is intended solely to assist in assessing its compliance with the Patient Protection and Affordable Care Act and other applicable federal and state law requirements, and is based on Burnham Benefit’s interpretation of federal guidance in effect as of the date of this publication. To the best of our knowledge, the information provided herein, and assumptions relied on, are reasonable and accurate as of the date of this publication. Furthermore, to ensure compliance with IRS Circular 230, any tax advice contained in this publication is not intended to be used, and cannot be used, for purposes of (i) avoiding penalties imposed under the United States Internal Revenue Code or (ii) promoting, marketing or recommending to another person any tax-related matter.

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