In the March 7, 2018 edition of the blog, we reported that as a result of a change in the 2017 tax legislation relating to the calculation of the cost of living adjustment to the annual dollar limit on contributions to a health savings account (“HSA”), the Internal Revenue Service (“IRS”) had announced that the maximum amount that may be contributed for 2018 to an HSA by an individual who has family coverage under a high deductible health plan was being reduced from $6,900 to $6,850.
The IRS previously had announced that the 2018 limit was $6,900 and, predictably, the possibility of having to address the $50 cutback presented employers and HSA custodians with a fair measure of administrative complexity both as to individuals who had already contributed $6,900 and those who had made salary reduction elections based upon the $6,900 limit.
Yesterday, bowing to complaints about the disproportionate cost of repaying $50 excess contributions and/or having to modify systems to reflect the reduced limit, the IRS issued guidance stating that, for 2018, the maximum amount that may be contributed for 2018 to an HSA by an individual with high deductible health plan family coverage will (you guessed it) be $6,900 not $6,850, after all.
Recognizing that an individual might already have withdrawn the $50 excess contribution (and earnings), based upon the announced $6,850 limit, the IRS guidance states that a person who has made such a withdrawal has the choice of repaying the distribution to their HSA by April 15, 2019, without the repayment being subject to an excess contribution penalty, or keeping the distribution. In either event, according to the IRS, the distribution will not be included in the person’s gross income.
The IRS cautions that there is no obligation on the part of an HSA custodian to allow an individual to repay the mistaken distribution.
