HSA Contribution Limits Have Changed!

2018 HSA Contribution Limits for Family Coverage
Impacted Retroactively

In March 2018, the IRS released Revenue Procedure 2018-10, which, for some tax-related formulas, adjusted the annual inflation factor from the Consumer Price Index (CPI) to a new factor called a “chained CPI.” This is retroactively effective to January 1, 2018.

As a result of the change, the 2018 family contribution limit for health savings account contributions is lowered to $6,850 from $6,900.

Enrollment Contribution Impact
Employee is enrolled in single
qualifying high deductible health
plan (HDHP) coverage
Not applicable No change necessary
Employee is enrolled in family
qualifying HDHP coverage
Employee (+ employer
contributions if applicable) are
set up to reach $6,900 by the
end of 2018; employee wishes
to cure prior to the end of 2018.
If no change is made, an excise
tax of 6% will be imposed on the
additional $50 unless the
employee changes his or her
salary reduction amount going
forward and reduces the total
contributions to $6,850 or less.
Employee is enrolled in family
qualifying HDHP coverage
Employee (+ employer
contributions if applicable) are
set up to reach $6,900 by the
end of 2018; employee wishes
to cure prior to the end of 2018.
If no change is made, an excise
tax of 6% will be imposed on the
additional $50 unless:

  • Employee account-holder
    requests a curative
    distribution equal to the
    excess amount ($50) by the
    last day for filing the account
    holder’s federal income tax
    return for the taxable year,
    (likely April 15, 2019) and
    does not use the distribution
    to pay qualified medical
    expenses.
  • The curative distribution
    would be made by
    contacting the HSA trustee
    or custodian and requesting
    a distribution of the excess
    amount plus attributable
    earnings (which are taxable).
  • The trustee will report the
    distribution on Form 1099-SA,
    coded as an excess contribution.
  • If the employer does not
    include the $50 on the
    employee’s 2018 wages on
    the employee’s W-2, the
    employee should report the
    $50 as “other income” on his
    or her federal income tax
    return.
Employee is enrolled in family
qualifying HDHP coverage
Employer-only contributions
have reached $6,900 by the
end of 2018
An employee’s HSA balance is
non-forfeitable at all times
regardless of who made
contributions to the account,
unless narrow exceptions occur.
This includes contributing more
than the annual maximum
amount allowed by the IRS.

  • The HSA trustee or
    custodian may return the
    erroneous excess
    contributions to the employer
    upon the employer’s request.
  • It is unclear under federal
    guidance if the financial
    institution must agree to
    return the funds.

Formula for Net Income

The net income on an excess HSA contribution is calculated using the following formula:

Net income = Excess Contribution × ((Adjusted Closing Balance − Adjusted Opening Balance) ÷ Adjusted Opening Balance)

The Adjusted Opening Balance is the sum of the excess contribution and the balance immediately before that excess contribution was made (that is, the balance at the start of the computation period).

The Adjusted Closing Balance is the balance immediately prior to distribution of the excess contribution (that is, the balance at the end of the computation period), plus any distributions or transfers made during the computation period.

3/7/2018

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The UBA Compliance Advisors help you stay up to date on regulatory changes to help simplify your job and mitigate compliance risk.

This information is general and is provided for educational purposes only. It reflects UBA’s understanding of the available guidance as of the date shown and is subject to change. It is not intended to provide legal advice. You should not act on this information without consulting legal counsel or other knowledgeable advisors.

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