IRS Lowers 2018 Family Contribution Limit for Health Savings Accounts

The IRS previously announced that the 2018 contribution limit for health savings accounts (HSAs) corresponding to family coverage under a high-deductible health plan would be $6,900. However, now three months into 2018, the IRS has announced that the limit has been reduced to $6,850. The contribution limit for an HSA corresponding to self-only coverage remains unchanged at $3,450.

This recalculation comes as a result of Section 1102 of the Tax Cut and Jobs Act, which requires that for tax years beginning after December 31, 2017, dollar amounts in the Internal Revenue Code previously indexed to the Consumer Price Index for All Urban Consumers (CPI-U), such as the contributions limits for HSAs, be instead indexed to the Chained Consumer Price Index for All Urban Consumers (C-CPI-U). Indexing under the C-CPI-U generally results in lower inflation than under the CPI-U.

Because of this change, employers should take prompt action to reduce the contributions of employees who are contributing to their HSAs at the maximum family limit and otherwise ensure HSA annual contributions for family coverage do not exceed $6,850. Taking steps now to prevent excess contributions will avoid unnecessary administrative hassle for employers and negative tax consequences for employees.  

If you have any questions about this change, please contact one of the attorneys in the Employee Benefits & Executive Compensation Practice Group at Bradley.