March 13, 2018

The IRS recently revised certain 2018 and 2019 cost of living adjustments in Revenue Procedure 2018-18, including a change to the 2018 maximum contribution limit under Health Savings Accounts (HSAs) for individuals with family coverage. The limit was reduced by $50 from $6,900 to $6,850. The self-only limit of $3,450 was unchanged. Additionally, the catch-up contribution limit of $1,000 for individuals who are age 55 or older during the tax year was not affected. The HSA catch-up limit is not currently subject to cost of living adjustments.

While unlikely, if an employee has more than $6,850 contributed to his or her HSA fund for this year, he or she needs to contact the HSA vendor to withdraw any amount over that limit (and any earnings). This must be done no later than the due date for the employee’s 2018 taxes (which will be in 2019). Otherwise, that excess amount will be considered an excess contribution and subject to a 6% excise tax. The excise tax applies each year for as long as the excess funds remain in the HSA, subject to certain possible reductions. Different providers will have different procedures for withdrawing those funds and the employee needs to work with those providers. 

This excess could include any employer or employee contributions (or any contributions by others). Under applicable IRS guidance, an employer generally cannot recover contributions to an HSA once they are made, unless the contribution was made in error. The IRS has not issued guidance saying whether an excess contribution over the $6,850 limit would be considered an error. However, in the absence of guidance, employers should tread carefully in asking for any money back.

In addition, employers should let their employees know about this change so they can adjust their elections appropriately for the rest of the year if they have not already reached the limit. Any employee communications with the old limit should also be updated.

Other Changes

In addition to the reduction in the HSA fund contribution limit, there are a few other benefits-related changes that may be of interest to employers:

  • The Affordable Care Act (“ACA”) added a small employer health insurance tax credit for insurance purchased through an exchange. However, the credit is reduced as the employer's average annual wages increase. The 2018 average annual wages at which the credit begins to phase out was reduced by $100 to $26,600. The maximum average annual wages at which the credit is available is twice that amount.
  • The maximum amount that can be excluded under an employer adoption assistance program for 2018 was reduced by $30 to $13,810.
  • For 2019, per calendar year maximum penalty amounts for certain reporting failures were reduced. These changes apply to filing incorrect, or failing to file ACA reporting returns with the IRS. They also apply if an employer provides incorrect, or fails to provide, the ACA reporting statements to employees. The per return penalties were not changed from prior guidance; only the annual maximums were reduced.
    • For employers with average annual gross receipts of more than $5 million for the three prior tax years the penalties are:
      HSA Funds Table
    • For employers with average annual gross receipts of $5 million or less for the three prior tax years the penalties are:
      HSA Funds Table 2

These new penalty maximums will not apply until the 2018 ACA reporting forms are filed in early 2019.

All of these changes are a result of changes made by the tax reform bill passed last December (sometimes called the Tax Cuts and Jobs Act). As part of that bill, Congress changed the method for calculating cost of living adjustments, starting in 2018. This resulted in smaller increases in some cases, as noted above.

If you have any questions on HSA funds and contributions, please contact your HUB Advisor. View more compliance articles in our Compliance Directory.

NOTICE OF DISCLAIMER

The information herein is intended to be educational only and is based on information that is generally available. HUB International makes no representation or warranty as to its accuracy and is not obligated to update the information should it change in the future. The information is not intended to be legal or tax advice. Consult your attorney and/or professional advisor as to your organization’s specific circumstances and legal, tax or other requirements.