On March 5, 2018, the IRS confirmed in the Internal Revenue Bulletin No. 2018-10 that the Health Savings Account (HSA) annual tax-deductible contribution limit for family coverage through a high-deductible health plan has been lowered to $6,850. The contribution limit had previously been set at $6,900. For account holders with self-only coverage through a high-deductible health plan the contribution limit remains the same at $3,450.
What does this mean for employers and their staff that have already calculated the health savings account contributions for the year and set up the deductions? You might need to make corrections! If you allow employees to contribute a lump sum to maximize their account at the beginning of the year, you will need to refund the excess contribution.
It is common for employees to calculate their pretax contribution at the beginning of the year and not even look at it again. What should you do?
HR should work with the payroll to identify any employees that are contributing and make sure the updated limit is set on the health savings account contribution. Placing a limit in the payroll system will eliminate the worry that too much will be taken out for 2018. If employees over-contribute to an HSA without correcting it, they will be hit with a 6 percent excise tax.
If too much is contributed and an adjustment isn’t made during the 2018 plan year, the IRS does not make it too hard to fix. Employees can avoid penalties by removing the excess contribution and treating it as normal taxable income.
More than likely, employees will be expecting HR to adjust and fix the contribution before it becomes an issue. Please be pro-active and take a look now to avoid another task to complete at the end of the year. You will be glad you did!
If you have any questions regarding this update to the health savings account contribution limit or any benefit or HR question, please reach out to Purple Ink, or to me directly at firstname.lastname@example.org.