IRS Recalculates HSA Family Coverage Deduction

Last week, IRS recalculated the previously released 2018 figures for Health Saving Account (HSA) family coverage deductions. Under the Tax Cuts and Jobs Act, inflation adjusted figures previously utilizing the Consumer Price Index for All Urban Consumers (CPI-U) would be indexed under the Chained Consumer Price Index for All Urban Consumers (C-CPI-U). Though of little import to the practicing accountant, the change was made to ostensibly get a better take on the cost of living adjustments.

As a result, the previously announced family coverage maximum contribution pre-tax and corresponding above-the-line deduction changed from $6,900 to $6,850. This may seem like an insignificant alteration, but it is not. I hear all of you questioning why I’d even write about a $50 nothing amounting to less than a dollar a week for the W-2 employee paid weekly. However, if you previously advised a client to contribute $6,900, that $50 will cause penalties if the excess and all earnings on the excess are not removed before the tax deadline. And the kicker is IRS imposes a six percent penalty every year if the correction is not made. Therefore, despite the fact that we are not talking a lot of money, a client seeing that perpetual penalty will undoubtedly blame you for not fixing it. And the client contributing the maximum to an HSA and thus also avoiding the Social Security and Medicare levies on that dough, is probably more sophisticated than most. It’s a great way to lose a paying client, so advise those affected to cut $50 from their 2018 contributions for family coverage.

The announced 2018 deduction for self-only coverage was not changed and remains $3,450. All relevant figures and also those for Archer MSAs can be found in Rev Proc 2018-18.

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Nick Spoltore is VP of Tax & Advisory Content for Surgent CPE. Mr. Spoltore is a graduate of the University of Notre Dame and of Delaware Law School. Before joining Surgent, he practiced tax and business law at the firm of Heaney, Kilcoyne in Pennsylvania and also in Delaware.