For the third time this year, the IRS is changing a key HSA contribution limit.
The agency just announced it will be reinstating the original HSA contribution limit of $6,900 for individuals with family coverage under a high-deductible health plan (HDHP).
What’s going on?
That amount was the limit the IRS first announced as the 2018 limit. But then in March, it announced another change.
In a virtually unprecedented move that was triggered by the Tax Cuts and Jobs Act, the IRS issued a mid-year change and lowered the limit for individual with family HDHP coverage by $50 to $6,850.
The feds backtracked on that reduction because of multiple complaints from employers about the difficulty of reprogramming their systems after the year already started.
Employers that already (re)programmed their pay/benefits systems for the reduced limit of $6,850 can again reprogram their systems to account for the restored amount.
But IRS doesn’t require anyone to do so. Workers who already withdrew funds based on the initial reduction of the HSA limit, can redeposit those funds until April 15, 2019.
Other 2018 limits
As a refresher, the 2018 Cost-of-Living Adjustments (COLAs) for a variety of tax-related limits, like the popular flexible spending accounts (FSAs) include:
- FSAs. The annual employee salary contribution limit to FSAs will increase to $2,650 (a $50 increase from 2017).
- Qualified transportation limits. The monthly limit that may be excluded from an employee’s income for qualified parking benefits will increase to $260 (up $5 from 2017). The combined monthly limit for transit passes and vanpooling expenses will also be $260 (up $5 from 2017).
- Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs). The maximum amount of payments and reimbursements under a QSEHRA cannot exceed $5,050 for individual coverage and $10,250 for family coverage (a $100 and $200 increase from 2017, respectively).
- Adoption assistance exclusion and adoption credit. The maximum amount that may be excluded from an employee’s gross income under an employer-provided adoption assistance program rises to $13,840 (up $270 from 2017). In addition to this increase, the maximum adoption credit allowed to an individual for the adoption of a child will also be $13,840 (a $270 increase from 2017). Both the exclusion and the credit will begin to be phased out for individuals with modified adjusted gross incomes greater than $207,580 and will be entirely phased out for individuals with modified adjusted gross incomes of $247,580 or more (both up $4,040 from 2017).
- Small business health care tax credit. The average annual wage level at which the tax credit begins to phase out for eligible small employers will rise to $26,700 (up $500 from 2017). The maximum average annual wages to qualify for the credit as an “eligible small employer” will be $53,400 (an increase of $1,000 from 2017).
- Archer MSAs. For Archer MSA-compatible high-deductible health coverage, the annual deductible for self-only coverage must be between $2,300 (up $50 from 2017) and $3,450 (up $100 from 2017), with an out-of-pocket maximum of $4,600 ($100 increase from 2017). For family coverage, the annual deductible must be between $4,600 (up $100 from 2017) and $6,850 (up $100 from 2017), with an out-of-pocket maximum of $8,400 ($150 increase from 2017).
- Premium Tax Credit. For taxable years beginning in 2018, there are a few increases, and the following limitations on the tax for excess advanced credit payments will apply: For unmarried individuals (other than surviving spouses and heads of household), $300 for household income less than 200% of the federal poverty line (FPL); $775 (up $25 from 2017) for household income at least 200% but less than 300% of FPL; and $1,300 (up $25 from 2017) for household income at least 300% but less than 400% of FPL. For all other taxpayers, $600 for household income less than 200% of FPL, $1,550 (up $50 from 2017) for household income at least 200% but less than 300% of FPL; and $2,600 (up $50 from 2017) for household income at least 300% but less than 400% of FPL.
What stays the same
- Dependent Care Assistance Program (DCAPs). The $5,000/$2,500 DCAP limit has not changed (it is a non-indexed limit), however there are adjustments to some of the general tax limits that are relevant to the federal income tax savings under a DCAP. These include the 2018 tax rate tables, earned income credit amounts, personal exemption amounts, and the standard deduction amounts. The child tax credit limits are also relevant when calculating the federal income tax savings from claiming the dependent care tax credit (DCTC) versus participating in a DCAP.
Note: These changes were outlined in IRS Rev. Procedure 2017-58.
