IRS revises HSA family contribution limit and other inflation-adjusted amounts

The Internal Revenue Service (IRS) published Revenue Procedure 2018-18 containing inflation-adjusted amounts revised due to the December 2017 enactment of the Tax Cuts and Jobs Act (P.L.115–97). The law revised the basis for certain tax adjustments from the Consumer Price Index for Urban Consumers (CPI-U) to the Chained CPI-U, effective in 2018. Thus, the new revenue procedure replaces figures previously announced for 2018 in Revenue Procedure 2017-37 (regarding health savings accounts [HSAs] and high-deductible health plans [HDHPs]) and Revenue Procedure 2017-58 (tax provisions, including those covering employer-provided benefits, that are subject to annual cost-of-living adjustments [COLAs]).

Revenue Procedure 2018-18 revises the following items (changed amounts are boldfaced):

HSAs/HDHPs: The maximum contribution limit to an HSA for family coverage under an HDHP is reduced by $50, while all other amounts remain the same. The HSA $1,000 annual “catch-up” contribution limit for individuals aged 55 or older was set by law for 2009 and later years and is not subject to inflation adjustments.

Amounts under Rev. Proc. 2017-37 2018 Updated Amounts under Rev. Proc. 2018-18
Benefit Self-Only Family Self-Only Family
HSA Maximum Annual Contribution $3,450 $6,900 $3,450 $6,850
HDHP Minimum Annual Deductible $1,350 $2,700 $1,350 $2,700
HDHP Maximum Annual Out-of-Pocket Expenses $6,650 $13,300 $6,650 $13,300

Archer Medical Savings Accounts: Some figures decrease for 2018.

Amounts under Rev. Proc. 2017-37 2018 Updated Amounts under Rev. Proc. 2018-18
Benefit Self-Only Family Self-Only Family
HDHP Annual Deductible Between $2,300 and $3,450 Between $4,600 and $6,850 Between $2,300 and $3,450 Between $4,550 and $6,850
Annual Out-of-Pocket Expenses $4,600 $8,400 $4,550 $8,400

Adoption Assistance Programs: All figures decrease for 2018.

Amounts under Rev. Proc. 2017-37 2018 Updated Amounts under Rev. Proc. 2018-18
Excludible amounts
For adoption of special
needs child
$13,840 $13,810
For other adoptions $13,840 $13,810
Phase-out Income Thresholds
Phase-out Begins $207,580 $207,140
Phase-out Ends $247,580 $247,140

Employee Health Insurance Expense for Small Employers: The amount decreases for 2018.

Amounts under Rev.
Proc. 2017-37
2018 Updated Amounts under Rev.
Proc. 2018-18
Small Employer Health Insurance Expense $26,700 $26,600

Employers that offer HSAs/HDHPs, Archer medical savings accounts, or adoption assistance to their employees, and/or employers that receive tax credits for health insurance premiums they pay for employees enrolled in qualified health plans under the Small Business Health Options Program (SHOP) should review their programs and consider modifying the amounts to comply with the updated figures. There are potential penalties and other tax consequences for noncompliance with the revised limits. For example, an employee contributing to an HSA for family coverage could be subject to additional taxes if he or she contributes at the outdated maximum amount. At this time, however, the IRS has not provided guidance on the steps necessary to make the midyear changes, so consulting with tax counsel or other expert advisers may be prudent. Employers also may have to modify administrative systems (e.g., to accommodate payroll withholding) and update communications materials to employees.

For further information about the IRS’s revised figures for 2018, please contact your Milliman consultant.

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