Health Savings Accounts: 2018 Contribution Limit Decreased for those Covered Under a Family HDHP | Wolters Kluwer
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  • Health Savings Accounts: 2018 Contribution Limit Decreased for those Covered Under a Family HDHP

    Randy Heidmann Onward

    by Randy Heidmann, Consultant, Tax Advantaged Accounts, Wolters Kluwer

    Published March 08, 2018




    (updated March 22, 2018)

    Overview

    In May 2017 the Internal Revenue Service (IRS) announced in Revenue Procedure 2017-37 the adjusted contribution limits to Health Savings Accounts (HSAs) and the requirements that define a health plan as an HSA eligible high deductible health plan (HDHP) for tax year 2018. The standard contribution limit for an HSA owner that has family HDHP coverage was increased from $6,750 to $6,900; the HDHP minimum deductible requirement increased from $2,600 to $2,700; and the out-of-pocket expense limit increased from $13,100 to $13,300.

    The Adjustment

    In late 2017 Congress passed the Tax Cuts and Jobs Act which modified the inflation adjustment formula to determine future cost-of-living adjustments. This modification has the effect of slowing down the adjustments applicable to HSAs, individual retirement accounts, and the Savers’ credit, which will result in smaller adjustments in tax year 2018 and future years. On March 5, 2018 the IRS released Revenue Procedure 2018-18 announcing the HSA contribution limit associated with coverage under a family HDHP was lowered from $6,900 to $6,850, effective for tax year 2018. The $6,900 previously announced was a correct amount but because of the cost-of-living formula change it has been decreased by $50. No changes were made to the self-only contribution limit which will remain at $3,450.

    The Fix

    If an individual has already contributed $6,900 ($7,900 if age 55 or older) to an HSA for tax year 2018 he/she may remove the $50 excess contribution, with earnings attributable, before his/her 2018 tax-filing deadline (including extensions) to avoid a 6% penalty tax. An alternative to removing the $50 excess contribution is to leave it in the HSA and pay a 6% penalty tax on that amount (i.e., $50 x .06 = $3). An individual, ideally with the help of his/her tax professional, pays the penalty tax by filing IRS Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, with his/her 2018 tax return. Additionally, the HSA owner indicates a $6,850 ($7,850 if age 55 or older) contribution for 2018 on IRS Form 8889, Health Savings Accounts (HSAs), which is also filed with his/her tax return. When using this approach an individual would contribute $50 less to his/her HSA for 2019 and would take a deduction for this applied contribution on his/her 2019 tax return. Whichever solution is considered, an HSA owner should discuss the options with his/her tax professional.

    Next Steps

    From application documents and disclosures to training and account owner educational materials, we have your IRA needs covered. Visit our 2017 Tax Reform resources.



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