IRS Restores 2018 HSA Contribution Limit for Family Coverage to $6,900

The IRS has released Revenue Procedure (Rev. Proc.) 2018-27 announcing that the health savings account (HSA) maximum contribution amount for 2018 family coverage is restored to $6,900. Thus, the 2018 HSA contribution limit for an HSA owner with family coverage is $6,900 instead of $6,850, which the IRS had previously announced in March 2018.

The IRS originally announced in May 2017 in Rev. Proc. 2017-27 that the 2018 family coverage contribution limit for 2018 would be $6,900. In early March 2018, it announced in Rev. Proc. 2018-18 that the limit was to be retroactively reduced to $6,850. This was the result of a revised formula required by the Tax Cuts and Jobs Act of 2017, enacted in December 2017, to calculate annual adjustments to contributions and associated limitations for HSAs, IRAs, and the retirement contribution tax credit (saver’s credit). This new formula results in annual contributions and other limitations rising more slowly over time. The change prompted the IRS to declare that the new formula would be applied to 2018 limitations, and the 2018 family coverage HSA contribution limit was to be reduced. 

The IRS notes in Rev. Proc. 2018-27, which it released April 26, that the reason for restoring the HSA family limit to $6,900 is that it received objections from stakeholders (HSA owners, financial organizations, and service providers). Many stakeholders cited unanticipated administrative and financial burdens. Some stakeholders asserted that the cost of removing $50 plus earnings to satisfy the reduced limitation could be greater than the tax benefit an HSA owner would realize from being allowed to retain the amount in an HSA.

Relief for Taxpayers

Rev. Proc. 2018-27 addresses the issue of taxpayers who had made maximum $6,900 contributions and then removed an amount to satisfy the IRS’ reduced 2018 limitation. It states that such an amount removed by a taxpayer as an excess contribution may instead be treated as a mistaken distribution and may be recontributed by April 15, 2019. The IRS points out that financial organizations are not required to accept mistaken distributions. But if accepting them, financial organizations must suppress the associated reporting—they must treat the mistaken distribution returned to an HSA as never having been distributed and the recontribution must not be reported as contributions. See the Instructions for Forms 1099-SA and 5498-SA for more details on mistaken distributions.

Alternatively, according to Rev. Proc. 2018-27, taxpayers who remove and retain such an amount under the excess contribution rules may retain the excess without including it in their 2018 taxable income, and without paying the 20 percent additional tax normally associated with amounts removed from an HSA but not used for qualified medical expenses. This must occur by the deadline for filing the 2018 federal income tax return, including extensions. Note that this alternative does not apply to an amount attributable to an employer-made contribution unless the employer includes it in taxable employee compensation.