IRS Readjusts Health Savings Account Annual Limit for 2018

The IRS is walking back a $50 change to the annual contribution limit for health savings accounts after getting pushback from some employers.

Taxpayers who contributed the maximum allowable amount of $6,900 to their health savings accounts for family coverage in 2018 don’t have to reduce their contributions by $50 to comply with a change prompted by the tax overhaul, the agency said April 26.

The IRS set the 2018 maximum HSA contribution level for families at $6,900 last year, but reduced the maximum contribution level to $6,850 on March 5. The change was made because the Tax Cuts and Jobs Act required a move to the chained consumer price index to calculate inflation.

The chained CPI is considered a more accurate measure of inflation than the conventional CPI because it tends to suggest a slower pace of inflation growth.

Employers almost immediately voiced their opposition to the March announcement, saying the abrupt change would cause problems for employers and workers. Employer groups asked the IRS to provide transitional guidance because of potentially costly administrative fees to make the change. Workers who had unintentionally gone over the limit also could face excise taxes if they didn’t pull the excess amount out of their health savings accounts.

More than 20 million Americans are in health savings accounts, according to America’s Health Insurance Plans. HSAs go hand-in-hand with high-deductible health plans, which have lower premiums but higher minimum annual deductibles and out-of-pocket expenses. Workers can contribute to HSAs to help pay medical bills before they hit their deductible.