Update: The IRS has announced that the family limit for 2018 HSA contributions has been raised to $6,900, which is the originally stated limit.
If your employees use health savings accounts (HSAs) to help manage their care costs, it’s time to alert them to some recent changes. The 2018 HSA limits for family accounts have been revised since the IRS originally announced them. It’s important to communicate the changes to your employees. Here’s what you need to know.
What Is a Health Savings Account?
As a quick refresher, if staff are using certain health care plans, they can deposit tax-deductible funds into a health savings account. When this money is used for qualified medical expenses, it can be withdrawn tax-free, too. And anything in the account that isn’t used grows tax-free.
Typically, HSA contributions are taken out of your employees’ paychecks, just like 401(k) contributions. Employers can also contribute to their employees’ HSAs, with these contributions counting as business expenses. If employees have their own account outside of work, they can deduct their contributions from their gross income on their tax return.
Note that only those with high-deductible, HSA-eligible plans can use these accounts.
What’s New in 2018?
In 2017, employees and their employers could contribute up to $3,400 a year total to an individual HSA, with an additional $1,000 allowed for account holders 55 or older. For family coverage in 2017, employees and employers could contribute up to $6,750 total per year.
In 2018, these limits were increased, as the Society of Human Resource Management (SHRM) reported. Employees and employers can now contribute up to $3,450 for individual coverage, and up to $6,850 for family coverage.
While an increased limit for 2018 sounds good, the problem is that the limit for family coverage was originally going to be $6,900, $50 higher than the current amount. A $50 change may not seem like much, but it could actually cause snags in accounting and create issues for people contributing the maximum amount. Employees who overcontribute to an HSA might face a 6 percent excise tax, SHRM notes.
If an employee is at-risk for overcontributing, employers will need to slightly adjust the amount of money being automatically taken out of their employees’ payroll and contributed to their HSAs. It’s a small adjustment, but it needs to be made to avoid the excise tax.
But what if an account has already been overcontributed to? SHRM suggests that employees who have already contributed the maximum will need to request a refund for their excess contribution. Otherwise — if they don’t catch this until the end of the year when it’s too late to change — they’ll need to remove the excess contribution and add the amount to their reported taxable income.
If you have employees with family health savings accounts, make sure to talk through these changes with them — especially if you previously initiated communication around the original and now outdated IRS announcement.
Start by sitting down with your accountant to find out what changes need to be made to your employees’ HSAs. Then send out a message informing your staff of the change, including an offer to hold one-on-one meetings to answer questions and determine whether they need to request refunds or fill out any paperwork to adjust the amount deducted from each paycheck.
At the end of the day, the revised 2018 HSA limits don’t need to cause a headache. But they will require some communication efforts and accounting changes in order to avoid a bigger headache down the line.
Stay up to date on the latest health care regulations and trends for your small business: Subscribe to our monthly e-newsletter.