IRS Announces Family Contributions Changes for HSAs

March 8, 2018

This applies to all employers offering medical plans with a Health Savings Account (HSA).

Overview

Effective for calendar year 2018, the family contribution limit for HSAs has been lowered to$6,850 from the previously set amount of $6,900. This change was released yesterday as the IRS published Internal Revenue Bulletin (IRB) 2018-10 that contains Revenue Procedure (Rev. Proc.) 2018-19. Please note there is no impact to the individual contribution limit ($3,450) or catch-up contribution limit ($1,000).

This change came as a result of the tax reform law (P.L. 115-97) that changed the annual inflation adjustment factor from the Consumer Price Index (CPI) to a new factor known as 'chained CPI'. This change was anticipated to slow the rate of changes in all programs under the tax code, including HSAs.

Vita Clients: Your Vita representative will be contacting you should this change impact your organization's benefit plans. 

Below is a chart outlining the impact of the changes: 

Enrollment Contribution Impact
Employee is enrolled in single
qualifying high deductible health
plan (HDHP) coverage
Not applicable No change necessary
Employee is enrolled in family
qualifying HDHP coverage
Employee (+ employer
contributions if applicable) are
set up to reach $6,900 by the
end of 2018; employee wishes
to cure prior to the end of 2018.
If no change is made, an excise
tax of 6% will be imposed on the
additional $50 unless the employee changes his or her salary reduction amount going forward and reduces the total contributions to $6,850 or less.
Employee is enrolled in family
qualifying HDHP coverage
Employee (+ employer
contributions if applicable) are
set up to reach $6,900 by the
end of 2018; employee wishes
to cure prior to the end of 2018.

If no change is made, an excise
tax of 6% will be imposed on the
additional $50 unless:

  • Employee account-holder requests a curative distribution equal to the excess amount ($50) by the last day for filing the account holder's federal income tax return for the taxable year (likely April 15, 2019) and does not use the distribution to pay qualified medical expenses.
  • The curative distribution would be made by contacting the HSA trustee or custodian and requesting a distribution of the excess amount plus attributable
    earnings (which are taxable).
  • The trustee will report the
    distribution on Form 1099-SA,
    coded as an excess contribution.
  • If the employer does not include the $50 on the employee's 2018 wages on the employee's W-2, the employee should report the $50 as "other income" on his or her federal income tax return.
Employee is enrolled in family
qualifying HDHP coverage
Employer-only contributions
have reached $6,900 by the
end of 2018

An employee's HSA balance is non-forfeitable at all times regardless of who made contributions to the account, unless narrow exceptions occur. This includes contributing more
than the annual maximum amount allowed by the IRS.

  • The HSA trustee or custodian may return the erroneous excess
    contributions to the employer
    upon the employer's request.
  • It is unclear under federal guidance if the financial institution must agree to return the funds.

Download the 2018 Compliance Calendar

Keeping you up-to-date!

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