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Employment Blog

The IRS Says Never Mind – You Can Have Your Higher HSA Limit!

Authored by Mary Ellen Schill
Mary Ellen Schill
Attorney
Wausau Office

Posted on April 30, 2018
Filed under Employment

I previously blogged about how unusual it was for the IRS to implement a retroactive change to a previously announced limit.  As you may remember, the $6,900 limit on HSA contributions for a taxpayer eligible for a family high deductible health plan (HDHP) previously announced May 4, 2017 was reduced on March 5, 2018 to $6,850, retroactive to January 1, 2018.  Now we have something even more unusual, as the IRS on April 26, 2018 announced that it was all just a dream, and the limit is back to $6,900. 

Citing complaints from stakeholders (individuals, employers, and HSA providers) about additional administrative and financial burdens, the IRS determined that it would be “in the best interest of sound and efficient tax administration” to allow taxpayers to rely on the limit of $6,900 as originally announced back in May 2017.

So what happens to HSA account owners that already received a distribution from their HSA of an excess contribution (with earnings) based on the lower limit?  Those individuals can (if the HSA trustee/custodian so allows) repay the distribution to the HSA by April 15, 2019 and treat the distribution as a mistake of fact due to reasonable cause.  Mistake of fact treatment means that the distribution isn’t included in gross income nor is it subject to the 6% excise tax on excess contributions

If the HSA account owner already received a distribution from his or her HSA of an excess contribution (with earnings) based on the lower limit and the individual does not pay back the excess distribution, then so long as the distribution was made by the due date (including extensions) for the individual’s 2018 income tax return, the distribution won’t be subject to the 6% excise tax, but will of course be subject to income taxes.

This is where I refer to you the handy chart of 2018 limits for HSAs, reflecting the limits after the do-over from the IRS.  I really hope I don’t have to update this every again!
 

HSA/HDHP Requirement Cost-of-Living Adjustments
Limit on HSA Contributions - Self-only HDHP

2017-$3,400

2018-$3,450
Limit on HSA Contributions - Family HDHP

2017-$6,750

2018-$6,900
HDHP Required Deductible - Self-only HDHP

2017-$1,300

2018-$1,350
HDHP Required Deductible - Family HDHP

2017-$2,600

2018-$2,700
HDHP Out-of-pocket Maximum - Self-only HDHP

2017-$6,550

2018-$6,650
HDHP Out-of-pocket Maximum - Family HDHP

2017-$13,100

2018-$13,300

HSA Catch-up Contribution Limit

2017-$1,000

2018-$1,000