Health Savings Account (HSA) Administration: Updated 2018 Contribution Limits
Back in May of 2017, the IRS released Revenue Procedure 2017-37, which set the 2018 HSA limits for individuals at $3,450 and for families at $6,900 for employer-sponsored, high-deductible health plans. However, with the passage of the Tax Cut and Jobs Act of 2017 in December, adjustments were made. UPDATED April 30, 2018: The IRS recently released a new Revenue Procedure 2018-27 advising that for the calendar year 2018, taxpayers may treat $6900 as the annual limit for their family coverage HSA contribusions.
How is a High-Deductible Health Plan Defined?
As noted in Internal Revenue Service Bulletin 2018-10, “For calendar year 2018, a “high deductible health plan” is defined under § 223(c)(2)(A) as a health plan with an annual deductible that is not less than $1,350 for self-only coverage or $2,700 for family coverage, and the annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) do not exceed $6,650 for self-only coverage or $13,300 for family coverage.”
IRS Recalculates the 2018 Maximum HSA Contribution Amount for Families
A provision that was included in the 2017 Tax Reform legislation made changes to the manner in which the IRS calculates the inflation adjusted maximum annual limits on pre-tax employee contributions to employer sponsored Health Savings Accounts, Flexible Spending Accounts, and Transit Accounts. For the most part, these changes did not impact employers for the calendar year 2018 – with one exception. Due to the new calculation method, the 2018 limit on pre-tax employee contributions to Health Savings Accounts with Family Coverage was lowered from $6,900 to $6,850. The IRS outlined this change under Internal Revenue Service Bulletin 2018-10.
What Does This Mean for Employers?
Going into 2018, the annual contribution limit for pre-tax employee contributions to Health Savings Accounts with Family Coverage was $6,900. If you offer an HSA, and you have any employees who chose to participate with an annual contribution of more than $6,850, you will need to recalculate the remaining per pay period deduction amount to withhold based on what was what withheld so far, and how many pay periods remain in 2018. In some cases, you will find that an employee has already maxed out their annual HSA contribution at $6,900, exceeding the $6,850 limit. If you find yourself in this situation, you will need to work with your payroll provider to correct things for W2 purposes. Getting the $50 of over contributed money back may be a bit more difficult. Technically speaking, an HSA is no different than any other bank account – each employee has their own account #/routing # combination. In our experience, processing debit transactions against employee HSA bank accounts will not work. Sometimes it does though. In any case, your benefit broker should be knowledgeable about your best path for getting to resolution.
Sample Recalculation of Contributions
Your employee Jane Smith is married and has 3 children. She had elected to contribute the maximum amount permitted to her HSA account because she elected a high-deductible, family health plan that your company offers. You pay your employees on a bi-weekly basis and Jane received her last pay statement on Friday, March 23, 2018, which shows that given her bi-weekly contributions of $265.38 her YTD HSA contributions total $1,592.28. Recalculate Jane’s bi-weekly contribution, as follows:
$6,850.00 (2018 limit) – $1,592.28 (YTD Contributions) ÷ 20 (remaining # of pay periods) = $262.886
Note: you should round down to avoid contributing over the maximum, so $262.88 will be the new bi-weekly contribution
What Happens if an Employee Contributes More Than the Permitted Contribution Limit?
Contributions that exceed the defined annual limits may be subject to taxes and penalties.
Need Help Calculating and Administering Your HSA Plans?
CheckmateHCM’s payroll software & service helps employees and employers administer HSA plans allowing employees to define their HSA contribution amounts, employers to make the necessary pre-tax deductions and issue payments and export related reporting data to third-party HSA benefit administration firms. Automate your HSA administration and avoid the headache and compliance risks of manual errors with our comprehensive solution.
