After a big push by employers and various industry groups, the IRS issued Rev. Proc. 2018-27 on April 26, 2018, to allow employers to use $6,900 as the health savings account (HSA) contribution limit for those with family coverage under a high deductible health plan for 2018.
As background, the IRS lowered the 2018 contribution limit in early March 2018 for family coverage from $6,900 to $6,850 due to a change in the inflation adjustment calculations for 2018 under the Tax Cuts and Jobs Act.
This is welcome relief because without it, employers who offer high deductible health plans coupled with an HSA feature faced an increased administrative burden to modify the allowable limit, particularly for those employers who allow employees to frontload their HSA contributions. Because some employers had already made corrections due to the $50 overpayment and treated it as a distribution of an excess HSA contribution, the Rev. Proc. also provides relief regarding those excess contribution distributions by allowing individuals to repay the distribution to the HSA and treat the distribution as the result of a mistake of fact due to reasonable cause under Q&A-37 of Notice 2004-50. That means the portion of the distribution (including earnings) that the individual repays to an HSA by April 15, 2019, (or if a 2018 tax return extension is granted, by the extended due date) will not be included in the individual’s gross income or subject to the 20% additional tax under Code Section 223. Those mistaken distributions that are repaid to the HSA are also not required to be reported on IRS Forms 1099 or 8889. While an HSA custodian is not required to allow repayment, we expect that most will allow it under these circumstances.
For more information, please see the IRS’s press release on this relief.