The IRS has issued Revenue Procedure 2018-27, which raises the HSA contribution limit for individuals with family coverage from $6,850 back to the earlier 2018 limit of $6,900. Individuals who have received a distribution from an HSA due to excess contributions based on the $6,850 limit may recontribute those funds to the HSA. Plan sponsors should immediately take action to notify HDHP/HSA plan participants of this change, so individuals can plan accordingly.
As we previously discussed in “Tax Reform Decreases 2018 HSA Contribution Limit,” the Tax Cuts and Jobs Act (TCJA) affected HSA contribution limits by applying a new cost of living adjustment (COLA) to the limits. In March 2018, the IRS issued Revenue Procedure 2018-18 applying the new COLA to the HSA contribution limit for individuals with family coverage, which resulted in a decrease in the 2018 HSA limit from $6,900 to $6,850.
In response to this guidance and limit decrease, a number of stakeholders (i.e., individuals who had already contributed the maximum $6,900 prior to the guidance, employers that sponsor high deductible health plans, and payroll vendors) noted the various tax and administrative issues stemming from the decrease and the resultant need to correct the “over-contributions.”
After consideration of these issues, the IRS issued Revenue Procedure 2018-27 on April 26, 2018. In this guidance, the IRS states that individuals with family coverage may treat $6,900 as the annual limitation. Furthermore, an individual who receives a distribution from an HSA of an excess contribution (with earnings) based on the $6,850 limit is permitted to repay those funds to the HSA and treat the distribution as the result of a mistake of fact due to reasonable cause (thus preserving the tax favored treatment of such funds).
Plan sponsors should immediately take action to notify HDHP plan participants of this change, so individuals can plan accordingly.
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