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Mar 2018
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March 13, 2018

IRS Recalculates Several 2018 Benefit Limits – Including Family HSA Contribution Limit

On March 5, 2018, the IRS released Rev. Proc. 2018-8, which recalculates several previously-announced 2018 benefit limits. The recalculation is a result of the Tax Cuts and Jobs Act, which legislated a particular method of calculating inflation for cost of living increases. Key 2018 benefit limit recalculations include:
 
  • Health Savings Accounts (HSAs). The annual HSA contribution limit for individuals with family HDHP coverage has been lowered to $6,850 (from $6,900). All other HSA limits for 2018 remain unchanged. 
     
  • Adoption Assistance Exclusion. The maximum amount that may be excluded from an employee’s gross income under an employer-provided adoption assistance program is $13,810 (down from $13,840). The exclusion will begin to be phased out for individuals with modified adjusted gross income (AGI) greater than $207,140 (down from $207,580) and will be entirely phased out for individuals with modified AGI of $247,140 or more (down from $247,580).

In light of these recalculated 2018 benefit limits, employers should do the following:
 
  • Communicate to employees the change in the law and the implications for employee HSA and adoption assistance contributions.  
     
  • For plans that specifically state the 2018 HSA family contribution and adoption assistance exclusion limits, amend plan documents to reflect the recalculated limits.
     
  • Consider amending plan documents to give the employer the ability to revise employee contribution elections as necessary to bring employee within the updated limit without requiring the employee to fill out a new election form.  
     
  • For employees who have already contributed the previous HSA maximum contribution for 2018 through the employer’s payroll (including any employer contributions), check with the HSA custodian(s) associated with the employer’s HDHP plan to see if the custodian can return excess contribution (including related earnings) to the employer. We have informal guidance from an IRS official that HSA custodians should be able to do this. If the custodian returns the excess contribution, pay the excess contribution (plus the related earnings) to the employee, subject to normal tax deductions.
     
  • Employees who have already contributed the previous HSA maximum contribution for 2018 outside of the employer’s payroll may make a curative withdrawal of the excess contribution plus any related earnings on the excess contribution. Employees should contact their HSA custodian regarding steps needed to remove the excess contribution and earnings. We have informal guidance from an IRS official that this withdrawal will not be subject to the 20% excise tax that applies to withdrawals that aren’t used for qualified medical expenses.
     
  • For employees who have already made the previous adoption assistance program contribution maximum, return the excess amount to the employee in his or her next paycheck, subject to normal tax deductions.  

For questions concerning the updated 2018 benefit limits, or any other employee benefits issue, please contact Norbert Kugele, Stephanie Grant, Kent Sparks or any member of the Warner Norcross + Judd Employee Benefits Practice Group.

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