March 6, 2018

IRS Releases Revised 2018 Limits for HSAs, Adoption Assistance Programs Due to Tax Reform

by Ben Lupin and Anu Gogna, Willis Towers Watson

The IRS released Revenue Procedure (Rev. Proc.) 2018-18 which, among other things, announced revised 2018 dollar limits for health savings account (HSA) contributions and the exclusion for adoption assistance programs. Specifically, the Tax Cuts and Jobs Bill (tax reform law) revised how tax-related inflation adjustments are calculated by requiring the IRS to use the chained consumer price index (chained CPI) instead of the standard consumer price index (traditional CPI). Chained CPI is a method of calculating inflation that takes into account the fact that as prices increase some consumers switch to lower priced products or substitute products, thereby reducing the effects of inflation. This means that Chained CPI will produce lower cost of living increases.

As a result of the IRS using the chained CPI for inflation adjustments, the 2018 annual HSA contribution limit for individuals enrolled in family coverage in an HSA-qualified high deductible health plan (HDHP) went down from $6,900 to $6,850. The annual HSA contribution for individuals enrolled in self-only coverage (i.e., $3,450), as well as the other limits for HSA-qualified HDHPs, remain unchanged. These limits announced in Rev. Proc. 2018-18 differ from the 2018 limits previously announced by the IRS (see below for more details).

The newly announced HSA and adoption assistance program limits are effective for calendar year 2018 (plan years beginning January 1, 2018). Please note that these limits apply retroactively for the 2018 plan year.