IRS Resolves 2018 HSA Contribution Limit Confusion

Acknowledging “numerous unanticipated administrative and financial burdens,” the IRS officially revoked its earlier attempt to lower the 2018 health savings account (HSA) contribution limits.  In guidance issued on April 26, the IRS announced that the 2018 HSA contribution limit for taxpayers with family coverage will be $6,900 as originally announced in 2017 – not the reduced $6,850 limit that was unexpectedly revealed earlier this year.

The new guidance resolves months of confusion stemming from last year’s tax reform legislation, which changed the calculation of the annual inflation adjustment to the contribution limits for HSAs.  In response to the new inflation adjustment calculations, the IRS issued guidance on March 2, 2018, which reduced the previously-announced family-coverage HSA contribution limit by $50 dollars.  The mid-year timing of the reduction left employers and individual taxpayers scrambling to correct contribution levels—and, in some cases, to take corrective distributions—to avoid running afoul of the new, reduced limits.

In addition to returning the HSA contribution limits to the previously-announced level, Rev. Proc 2018-27 also assures taxpayers that any corrective distributions made as a result of the March guidance can be repaid as a “mistake of fact due to reasonable cause.”  The repaid contribution (including earnings on that contribution) will not be included in the taxpayer’s gross income and will not be subject to excise taxes.

Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.