On March 5, 2018, the Internal Revenue Service (IRS) reduced the amount that individuals with family medical coverage can contribute to a health savings account (HSA) by $50—from $6,900 to $6,850. The reduction is effective immediately. Although the reduction is not large, it is likely to create administrative complications. Several members of Congress recently sent a letter to the Treasury Secretary requesting that the lower limit not be enforced in 2018, arguing that the IRS announced the higher limit in May 2017, and employees and employers had set their 2018 HSA contributions accordingly.
In response to this unsettled situation, employers could take a wait-and-see approach in the hope that the IRS will agree to delay enforcement. However, employers should not wait too long to communicate the reduction, in order to allow employees to change their HSA contribution elections or, for those employees who have already contributed $6,900 to their HSA, to request a refund of the excess contribution in order to be in compliance with the new limit. If enforcement is not delayed and no refund is issued by April 15, 2019, the excess will be subject to an excise tax. The refund is taxable.
The change in the HSA contribution limit is a result of the Tax Cut and Jobs Act that was passed at the end of 2017 and revised the way in which various tax-related limits are adjusted for inflation. The other HSA-related limits for 2018 remain unchanged.