In March, the IRS announced a change that lowered the 2018 maximum family HSA contribution amount from $6,900 to $6,850 for participants with family coverage under an HSA qualified High Deductible Health Plan (HDHP). Members of Congress and others contacted the IRS to request relief from this change.
On April 26, 2018, the IRS released Revenue Procedure 2018-27, which provides relief for 2018 by allowing taxpayers to use $6,900 as the 2018 maximum family HSA contribution limit. For those HSA owners who previously reduced their annual election to comply with the revised maximum family HSA contribution of $6,850, they now have the option to increase their maximum family HSA contribution back to the initial maximum of $6,900 for 2018.
This Revenue Procedure also provides direction for HSA owners who front loaded the full $6,900 HSA contribution at the beginning of the year and have subsequently taken a “corrective distribution” from their HSA to reduce their contribution to $6,850. If they took a $50 “corrective distribution” and their employer is not including any portion of the $6,900 original contribution in their wages (i.e., if they have not corrected (increased) the employee’s wages to account for the $50 corrective distribution), they may use the distribution for qualified medical expenses or pay it back to their HSA, treating the distribution as a mistake of fact due to reasonable cause. If neither of these actions are taken, the distribution will be includible in the employee’s gross income and subject to the 20% additional tax under section 223(f)(4).