The IRS Announces New (Reduced) Contribution Limits to Health Savings Accounts and Adoption Assistance

March 8, 2018

Learn what you should do to comply with the new family HSA contribution limits, and what changes have been made to adoption assistance benefits.

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On March 5th, the IRS announced a reduction to the 2018 maximum allowable contribution to Health Savings Accounts (HSA) that the agency originally announced in May of last year. The contribution change is a result of a provision in H.R. 1, the tax reform bill enacted in December, that changed the way that inflation-related increases are calculated from the “Consumer Price Index” (CPI) to a new factor known as “chained CPI.

The cap for a Family HSA contribution is now $6,850, down from $6,900. The individual contribution remains unchanged at $3,450. The change is effective immediately and family contributions in excess of $6,850 may be subject to taxes and penalties. All changes are outlined in Internal Revenue Bulletin No. 2018-10. For an employee who has already contributed $6,900 into their HSA account, it is important to ask the HSA trustee to distribute the overpayment as taxable income to avoid any penalties.

Other limits, such as the maximum deductible for HSA-qualified high deductible health plans (HDHP), maximum out-of-pocket limits (again for HSA-qualified plans) and catch up limits for people over age 55 were not changed.

As defined by the IRS, an HDHP is a “health plan with an annual deductible that is not less than $1,350 for self-only coverage or $2,700 for family coverage, and the annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) do not exceed $6,650 for self-only coverage or $13,300 for family coverage.”

blog post 2Adoption assistance benefits have been adjusted, as well. If your benefits packages includes adoption assistance, the maximum amount the employee may receive tax-free is $13,810, down from $13,840. The benefit starts to phase out at a modified adjusted gross income of $207,140—down from $207,580. The benefit is eliminated at a modified adjusted gross income of $247,140, down from $247,580.

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