IRS Updates 2018 HSA Family Contribution Amount

On March 5, 2018, the IRS issued a bulletin which contained, among other things, revised cost of living adjustments (COLAs) for 2018.  The previously passed tax reform law (i.e., Tax Cuts and Jobs Act) created the need for the revised COLAs, which have a direct impact in the employee benefits world affecting Health Savings Accounts (HSAs).  The Tax reform law now requires the IRS to use something called the “chained consumer price index” to calculate COLA provisions under certain provisions, one being HSA annual contribution limits.

As a result, the 2018 FAMILY HSA contribution maximum is now $6,850, which is $50 less than the previously announced 2018 family contribution limit of $6,900.  Importantly, the INDIVIDUAL, or “self-only coverage” 2018 limit is not affected, and remains at $3,450.

HSA account holders are affected if they have HSA qualifying, family coverage, and already made their full, 2018 HSA contribution, or have authorized a periodic contribution totaling $6,900.  Here’s what such affected individuals need to do to avoid the 6% excess contribution penalty*:

  • Individuals who have already made their 2018 contribution totaling $6,900 should contact their HSA custodian/trustee to determine the best way to withdraw/return the now $50 excess contribution.  In most cases, this will involve completing a simple form.
  • Individuals who have elected to have a pro rata portion of the previously announced $6,900 maximum withdrawn from payroll should contact the appropriate personnel at their employer (Human Resources, Controller, CFO, manager, owner, etc.) and request an adjusted payroll withdrawal amount reflecting the revised, $6,850 maximum.
  • Affected individuals that take appropriate action prior to 12/31/18 will avoid the 6% penalty* for making an excess contribution.
* Technically, an HSA excess contribution is subject to both the 6% excise penalty and ordinary income tax on the income earned from the excess contribution.  Presumably, since the amount of the reduction is so small (i.e., $50); and the reduced amount is coming relatively early in the year (March), there has been no mention of this aspect of the penalty.  However, we want our readers to be aware of this aspect of the excess contribution penalty, and if necessary, contact their tax /preparer and/or HSA custodian.