IRS Changes 2018 HSA Contribution Limit (Again)

You may or may not have known, but earlier this year, the IRS modified the annual limitation on deductions for contributions to a health savings account (“HSA”) allowed for taxpayers with family coverage under a high deductible health plan (“HDHP.”) This modification was due to changes brought about by the Tax Cuts and Jobs Acts, reducing the maximum deductible amount from $6,900 to $6,850. That’s how it was until last week, when they switched the amount back to the 2018 HSA contribution limit from earlier this year. Crisis averted! 

Why $50 matters and what the IRS did about it 

Some of you may not think that a $50 reduction is that big of a deal. But when it comes to tax-advantaged savings accounts, additional contributions are taxed at 6%- or $3. Individuals were then having to decide if they should pull out the extra contribution they made or pay the $3.

Because of excessive amounts of complaints and comments from individual taxpayers, employers and other major stakeholders, the IRS has decided to honor the originally released $6,900 as the 2018 family limit. Phew!

The IRS acknowledged that many individuals had already made the maximum HSA contribution for 2018 before the deduction limitation was lowered. Furthermore, the costs of modifying various systems to reflect the reduced maximum would be significantly greater than any tax benefit associated with an unreduced HSA contribution.

Here’s a handy chart as a quick reference for your HSA and High Deductible Plan. 

Why HSAs are awesome

HSAs offer triple tax advantages and are one of the many great ways to make the most of a high deductible plan. Here’s how:

1. Contributions are tax-deductible.
2. Contributions can be invested and grow tax-free.
3. Withdrawals aren’t taxed if you use them for qualified medical expenses like doctor’s visits or prescription drugs.

It’s basically like getting a 25% discount on your health expenses, depending on your tax bracket. Much like a 401k, the more you contribute, the more you save. HSAs are growing in popularity, and for good reason. In fact, HSAs have grown to an estimated $41 billion in assets and 21 million accounts at the end of last year.

Set up your free HSA today!

Thanks for Take Command Health’s partnership with Lively HSA, we offer our individuals and small business under 10 employees HSAs at no charge! Stop paying fees to your bank for an HSA and take advantage of one of the many free perks from a Take Command Health membership.