Alert! IRS Reduces HSA Maximum Contribution

In the recently issued Internal Revenue Bulletin No. 2018-10, the Internal Revenue Service (IRS) announced that it is reducing the maximum, permissible employee contribution to Health Savings Accounts (HSAs) for 2018 from $6,900 to $6,850. The change is a result of the Tax Cuts and Jobs Act passed by Congress in late 2017. This change has several important implications:

  • Employees who contributed the previous maximum of $6,900 must request a refund of $50 in order to avoid excise taxes on their excess contribution.
  • Employees who contribute to HSAs should be informed of the newly reduced limit.
  • Employees whose contribution plans correspond to the old limit must put into place a reduced contribution plan to adjust for the lowered maximum threshold.

In addition, Bulletin No. 2018-10 reduced the amount that employees may exclude from gross income when they incur qualified adoption expenses under an employer-sponsored adoption assistance plan. The new limit for 2018 is $13,810, compared to the previous limit of $13,840.

Bulletin No. 2018-10 also clarified that these changes apply only to employees who maintain an HSA as part of a high-deductible family plan. Self-coverage plans with HSAs retain their $3,450 annual contribution limit. In addition, flexible spending accounts (FSAs) and other fringe benefit program limits remain unaltered for 2018.

Employers should plan to notify their employees of the decreased limit for 2018, as well as work with employees who have already exceeded the contribution limit to recover the $50 excess contribution.