IRS Revises Contribution Limit for Health Savings Accounts

Published on May 1, 2018

Taxpayers with Self-Directed HSAs May Contribute Higher Amount under Rev. Proc. 2018-27

In an announcement on Thursday, April 26, 2018, the IRS announced a modification to the annual limitation on deductions to health savings accounts, for calendar year 2018. The HSA contribution limits allowed for taxpayers with family coverage under a high-deductible health plan (HDHP) have been increased (actually, returned to previous limits). Under Rev. Proc. 2018-27, taxpayers will be allowed to treat $6,900 as the annual limitation instead of the $6,850 limitation (previously announced in March with Rev. Proc. 2018-18). Just as with all retirement plans and HSAs, individuals with self-directed HSAs will also be eligible for the higher contribution limit for 2018.

Earlier this year, new calculations were mandated with the passage of the Tax Cut and Jobs Act, which in turn lowered the HSA contribution limit for those with family coverage to $6,850 (from $6,900). The bill, passed in late December 2017, stipulated those calculations be taken on various inflation-adjusted amounts, which included HSA limitations.

However, after the IRS announced that lower limit, it heard complaints from individual taxpayers, employers and payroll administrators, who stated that the change would incur “unanticipated administrative and financial burdens.” In addition, some qualified taxpayers had already made the maximum contribution for 2018 under the lower amount or had made annual salary reduction elections for HSA contributions based on the $6,900 limit that was announced earlier last year (before the tax bill passed and revised limits came to be).

Contribution limits for your self-directed HSA

In a nutshell (although somewhat complicated):

• The IRS is allowing taxpayers to treat $6,900 as the annual limitation on deductions for an individual with HDHP family coverage
• An individual who receives a distribution from an HSA in excess of the $6,850 limit published in Rev. Proc. 2018-18 may treat that distribution as the result of a “mistake of fact due to reasonable cause” under Q&A-37 of Notice 2004-50.
• The portion of a distribution (including earnings) that an individual repays to the HSA by April 15, 2019, will not be included in the individual’s income under Sec. 223(f)(2) or be subject to the 20% additional tax under Sec. 223(f)(4).
• The repayment will not be subject to the excise tax on excess contributions under Sec. 4973(a)(5).

There are other stipulations about HSA contributions, distributions, and deductions that all taxpayers with health savings accounts should be aware of. We recommend you consult your tax advisor about how these may affect you.

If you’d like to open a self-directed HSA, our professionals at Next Generation can answer all your questions—in easy-to-understand language—and help you get your account open. Read more about self-directed health savings accounts on our website, or contact us at Info@NextGenerationTrust.com or 1.888.857.8058.