IRS Restores Maximum HSA Contribution to $6,900 for 2018, Provides Special Relief

When Congress changed the method of computing most inflation adjustments by moving to the chained CPI calculation as part of the Tax Cuts and Jobs Act signed into law in December of 2017, virtually all of the inflation adjusted numbers for 2018 had already been published and some actions had been taken in reliance on those numbers.  When those numbers changed, that put some taxpayers in a tough position.

Specifically, the IRS announced in Revenue Procedure 2018-18 that the maximum contribution to a health savings account for an individual with family coverage would be reduced by $50, to $6,850 rather than the $6,900 limit originally provided for in Revenue Procedure 2017-37 that was issued in May of 2017.  In response to numerous complaints about this change announced after 2018 had already begun, the IRS in Revenue Procedure 2018-27 announced that the agency would continue to treat $6,900 as the maximum contribution for an individual with family coverage.

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Male Sterilization/Contraception Coverage Not Covered by Preventive Care Exception for HDHP Policies

The IRS issued guidance that may put at risk the ability of individuals in certain states to participate in health savings accounts (HSAs) beginning in 2020 in Notice 2018-12.

As Tax Analysts reported in covering this Notice, several states, including California, Illinois, Maryland, and Vermont, prohibit cost-sharing for insurance coverage of male sterilization and contraception services.  But only Vermont has a “carve-out” for HSA-qualified high deductible health plans (HDHPs).

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Letters Explain Maximum HSA Contributions for Year Taxpayer Enrolls in Medicare

Contributions can no longer be made by individuals who are otherwise eligible to contribute to Health Savings Accounts beginning with the first month the individual is eligible for benefits under title XVIII of the social security act (otherwise known as Medicare).  [IRC §223(b)(7)]  In Information Letters 2016-0014 and 2016-0003 the IRS addressed the maximum contributions for individuals who enroll in Medicare during the year.

As the provision requires a taxpayer to be eligible for benefits and one of basic requirements to be eligible is that the taxpayer must register of Medicare—so merely attaining age 65 is not, by itself, enough to trigger the limitation.  If an individual has otherwise equivalent coverage (perhaps provided by an employer for employee that is working upon attaining age 65) the person can still be eligible to make a contribution.

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Letter to Bankers States That Erroneous Employer HSA Contributions May Be Refunded in More Situations Than Just the Two Mentioned in Notice 2008-59

Tax Analysts published a copy of the letter from the IRS to officials at UMB Bank and the American Bankers Association in Tax Notes Today on April 8 that explained that Notice 2008-59’s list of conditions under which an employer may take back a contribution to an employee’s HSA is not an exclusive list of such situations. (2016 TNT 68-9)

If an employer has provided for contributions to be made to eligible employee’s HSAs under Section 223, a problem arises if the contribution is, in fact, in error and excessive.  IRC Section 223(d)(1)(E) provides that a taxpayer’s balance in an HSA is nonforfeitable.  Notice 2008-59 provided two conditions under which an employer could recover an erroneous payment.

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