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IRS Reduces 2018 Family HSA Contribution Limit

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In a slight change of course, the Internal Revenue Service announced on March 5 that it is lowering the maximum contribution limit for family Health Savings Accounts (HSA). The maximum contribution limit for individuals with family coverage was set at $6,900 for 2018 originally (as announced previously in Rev. Proc. 2017-37), but it has been decreased to $6,850, effective immediately.

This change poses significant operational and other issues for employer-sponsored HSA-qualified health plans. The individual contribution limit for 2018 remains $3,450. The minimum deductibles for high-deductible health plans (HDHPs) also remain unchanged.

The adjustment is likely an unintended consequence of changing the method of determining inflation-related increases as indicated by a provision of the new tax law (H.R. 1), according to the American Benefits Council.

Since the change is effective immediately, it applies for the current year and any family contribution to an HSA in 2018 over $6,850, it could be subject to taxes and penalties. The American Benefits Council intends to work with Congress and the IRS to find a practical solution to avoiding the disruption that results from the decreased HSA contribution limit under Internal Revenue Bulletin 2018-10.

The IRS also issued Notice 2018-12 on March 6, which provides transition relief for individuals who “enrolled in health insurance policies that otherwise would have qualified as HDHPs with the understanding that coverage for male sterilization or male contraceptives without a deductible did not disqualify the policies or arrangements from being HDHPs."

The notice provides transition relief “for periods before 2020 (including periods before the issuance of this notice)," allowing these plans that offer male sterilization or male contraceptives benefits to qualify as HDHPs and allows these costs to be deductible contributions to an HSA.

 

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