HSA Contribution Limits for 2018 Won’t Reflect Tax Law’s Contentious Changes, IRS Says

Tuesday May 29th, 2018

Heading into 2018, the maximum contribution limit for employees’ health savings accounts started out at $6,900 for families (up from $6,750 in 2017) and $3,450 for individuals (up from $3,400 in 2017), based on a letter provided by the agency in April.

HSAs, which are tax-advantaged accounts that must be paired with a high-deductible health plan, allow employers and employees to contribute funds for an employee's tax-qualified health benefit expenses.

According to April 2018 survey data from the advocacy and trade association America’s Health Insurance Plans, 21.8 million Americans had an HSA and a high-deductible health plan in 2017, which was up from 20.2 million in 2016.

When the Tax Cuts and Jobs Act was passed in December 2017, the law changed the Consumer Price Index used for determining certain dollar thresholds in the tax code, including HSA contribution limits.

This change in the inflation adjustment calculations meant that the IRS had to revise the maximum contribution limits for HSAs. In early March, the IRS announced that the maximum contribution limit would be reduced by $50 to $6,850 and the change would be applied retroactively to Jan. 1, 2018.

While many employers immediately voiced their concerns about the administrative burden this would place on their payroll departments, the American Payroll Association took action on April 6 by writing a formal letter to the IRS asking for transition relief in 2018 for the HSA contribution limit.

The APA’s reasoning for transition relief was that the $50 change would have to be reported as taxable income – which would require payroll departments to make an adjustment for participating employees. Ultimately, the cost to correct the $50 reduction in maximum contributions would far outweigh any benefits.

In response, the IRS announced in an April 26 letter that employees may treat $6,900 as the maximum deductible health savings account contribution for 2018, instead of $6,850.

Looking Ahead to 2019

The IRS has already released the annual contribution limits for HSAs in 2019. The annual limit on deductions for an individual with self-only coverage under a high-deductible health plan is set at $3,500, while the annual limit on deductions for an individual with family coverage under a high deductible health plan is set at $7,000.

A high-deductible health plan for 2019 would be defined as a health plan with an annual deductible of at least $1,350 for self-only coverage or $2,700 for family coverage (both unchanged from 2018).

Annual out-of-pocket expenses, such as deductibles and co-payments, are not to exceed $6,750 for self-only coverage (up from $6,650) or $13,500 for family coverage (up from $13,300).