The family contribution limit for a health savings account (HSA) for 2018 was reduced from $6,900 to $6,850 by the Internal Revenue Service (IRS), along with adjustments made to other IRS thresholds to reflect the recent tax legislation.
The Tax Cuts and Jobs Act signed in December (Pub. L. 115-97) changed the method for calculating annual inflation adjustments. Accordingly, in Revenue Procedure (Rev. Proc.) 2018-18, the IRS adjusted many of the dollar figures that apply in 2018, including the adoption credit and phaseout thresholds.
An individual with family coverage under an HSA-eligible high-deductible health plan (HDHP) may deduct up to $6,850 for contributions to an HSA, according to Rev. Proc. 2018-18, which supersedes Rev. Proc. 2017-37. The self-only contribution limit remains unchanged at $3,450. The catch-up contribution limits, out-of-pocket maximums, and minimum deductibles for a qualifying HDHP were not affected.
Employers should communicate this change to employees and make any necessary adjustments to payroll and eligibility systems. Some employees may need to change their elections, and those who have already contributed $6,900 will have an excess contribution and need to take a corrective distribution (including earnings on the $50) by the 2019 tax filing date.
The maximum amount excludable for qualified adoption expenses in 2018 was reduced slightly, from $13,840 to $13,810. The exclusion begins to phase out for taxpayers with modified adjusted gross income exceeding $207,140 and phases out completely at $247,140 (down from $207,580 and $247,580, respectively).
For Archer medical savings accounts, the maximum annual out-of-pocket limit for a qualifying self-only HDHP was lowered from $4,600 to $4,550, as was the minimum annual deductible for family coverage. For the small-employer health insurance credit under Section 45R of the Internal Revenue Code, the amount used to determine credit eligibility and phaseout was reduced from $26,700 to $26,600.
Section 11002 of the TCJA replaced the standard consumer price index (CPI) with the “chained” CPI for purposes of making cost-of-living adjustments. Rev. Proc. 2018-18, published March 5 in Internal Revenue Bulletin 2018-10, reevaluates amounts that the IRS had previously set for 2018 in light of the new formula.