HealthEquity blog

Updated April 26, 2018: IRS adjusts HSA contribution limit for family plans

UPDATE: On April 26, 2018, the IRS reversed their guidance and restored the maximum annual contribution limit for a family HSA to $6,900 for taxpayers with qualifying coverage. Accountholders wishing to make the maximum annual contribution, and who have adjusted their current contributions based on the lower limit, may now adjust their contributions as needed.


On March 5, 2018 the IRS announced that the maximum annual HSA contribution limit for an individual with family coverage in 2018 has IRSbeen lowered from $6,900 to $6,850. The maximum annual HSA contribution limit for an individual with self-only coverage remains at $3,450. There is also a $1,000 catch-up contribution available to individuals who will be at least 55 years old during 2018.

There is a possibility that this change could be reversed and/or amended. HealthEquity will be following future developments and updating this blog post with more information as it becomes available.

What could this mean for you?

Accountholders with a family plan may need to adjust their contributions so as not to contribute more than the allowed amount. Many accountholders have worked out how much they would need to contribute each week, month or paycheck based on the contribution limit of $6,900. Accountholders may need to adjust these contribution amounts to reflect the new limit of $6,850.

If you have already contributed $6,900 to your HSA for 2018, you may need to work with your HSA provider to take out the extra $50. The procedure for removing the extra amount will vary by company, so contact your HSA provider to learn more. The deadline to remove excess contributions for 2018 is the tax filing deadline of April 15, 2019. Making corrections in 2018, however, may help you avoid a corrected W-2 depending on how the contributions were made and how they are reversed.

A $50 change isn’t much, but even small excess amounts may result in tax penalties. The IRS charges a 6% excise tax plus your regular income tax rate for excess amounts that are not removed from your HSA by the tax filing deadline. For more information see IRS publication 969.

 

HSAs are still a great option to save on healthcare costs

Despite the lowered contribution limit, an HSA is still one of the best ways that a family can save money for healthcare expenses. Here’s just a few benefits that HSAs provide to accountholders:

  • Potentially lower monthly health insurance premiums (through an HSA-qualified high-deductible health plan).
  • The funds you put into your HSA are not taxed1 and you can earn tax-free interest on HSA balances.
  • Unlike FSAs and 401(k)s, you own the HSA and all contributions, so if you leave your employer, you can take all of your HSA with you.
  • The entire balance of your HSA rolls over every year.
  • You can invest your HSA funds for a potential to increase HSA funds (tax-free).2
  • You can pay for qualified medical expenses out-of-pocket and then reimburse yourself later from your HSA.
  • Pairing an HSA with a consumer-driven healthcare mindset means you can pay less for medical costs (Example: Choosing a generic version of prescriptions instead of going with name-brand medicine).

Conclusion

Despite the slightly lower contribution limit, HSAs are still a great way for a family to save money on healthcare costs. HealthEquity will update this post with additional information as it becomes available.

 

1. HSAs are never taxed at a federal income tax level when used appropriately for qualified medical expenses. Also, most states recognize HSA funds as tax-free with very few exceptions. Please consult a tax advisor regarding your state’s specific rules.

2. Investments available to HSA holders are subject to risk, including the possible loss of the principal invested and are not FDIC insured or guaranteed by HealthEquity, Inc.

HealthEquity does not provide legal, tax, financial or medical advice.

Topics: HSA, HSA investing, HSA questions, HSA fees

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