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HSA Family Contribution Update

The IRS announced in Revenue Procedure 2018-27 relief for taxpayers with family coverage under high deductible health plans. The procedure re-instates the originally announced maximum contribution limit for 2018 of $6,900. In March of 2018, the IRS had revised the amount to $6,850 for family plans. The annual limitation for an individual with self-only coverage under a high deductible plan is $3,450 (unchanged from prior announcements). An individual who received a distribution for an excess contribution to comply with the $6,850 limit announced in March, may generally repay the distribution to the HSA by April 15, 2019 with no tax consequences. The procedure provides guidance on the tax treatment for scenarios related to distributions for excess contributions, which are summarized in the below examples.

Example 1 – Repayment of excess distribution (and earnings) to HSA

An individual with family coverage under a high deductible health plan contributed $6,900 on January 1, 2018 to their HSA. The individual received a $50 distribution from their HSA as an excess contribution on March 31, 2018 to comply with the announced contribution limit of $6,850. On May 1, 2018 the individual repays $50 to the HSA to get total contributions for 2018 back to the re-instated maximum contribution limit of $6,900.

Result: The distribution is not included in the individual’s gross income or subject to the 20 percent additional tax, and the repayment is not subject to the excise tax on excess contributions. The individual will receive a deduction of $6,900 for HSA contributions on their 2018 tax return.

Example 2 – No repayment of excess distribution (and earnings) to HSA

An individual with family coverage under a high deductible health plan contributed $6,900 on January 1, 2018 to their HSA. The individual received a $50 distribution from their HSA as an excess contribution on March 31, 2018 to comply with the announced contribution limit of $6,850. The individual does not repay the $50 to the HSA by April 15, 2019.

Result: The distribution is not included in the individual’s gross income or subject to the 20 Percent additional tax. The individual will receive a deduction of $6,850 for HSA contributions on their 2018 tax return.

Example 3 – HSA contributions through payroll and no repayment of excess distribution (and earnings) to HSA

An individual with family coverage under a high deductible health plan contributed $6,900 on January 1, 2018 through payroll deductions to their HSA. The individual received a $50 distribution from their HSA as an excess contribution on March 31, 2018 to comply with the announced contribution limit of $6,850. The individual does not repay the $50 to the HSA by April 15, 2019 and does not use the $50 for qualified medical expenses.

Result: The distribution may be includible in the employee’s gross income and subject to the 20 percent additional tax.

Example 4 – HSA contributions through payroll and no repayment of excess distribution (and earnings) to HSA

An individual with family coverage under a high deductible health plan contributed $6,900 on January 1, 2018 through payroll deductions to their HSA. The individual received a $50 distribution from their HSA as an excess contribution on March 31, 2018 to comply with the announced contribution limit of $6,850. The individual does not repay the $50 to the HSA, but uses the $50 for qualified medical expenses.

Result: The distribution is not included in the individual’s gross income or subject to the 20 percent additional tax.

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