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IRS Revises Some 2018 Benefit Limits Due to Tax Cuts and Jobs Act



Rev. Proc. 2018-18, 2018-10 I.R.B. 392 (March 5, 2018)

The IRS has revised several 2018 benefit limits and thresholds to reflect a change in the method of calculating certain cost-of-living adjustments (COLAs) prescribed under the Tax Cuts and Jobs Act (TCJA) (see our Checkpoint article). The changes affect some of the limits previously announced in Rev. Procs. 2017-37 (see our Checkpoint article) and 2017-58 (see our Checkpoint article). Here are the key revisions.

  • HSAs. The annual HSA contribution limit for individuals with self-only HDHP coverage remains at $3,450, but the limit for individuals with family HDHP coverage has been lowered to $6,850 (from $6,900). The minimum annual deductibles are unchanged at $1,350 for self-only HDHP coverage and $2,700 for family HDHP coverage. The out-of-pocket maximums are also unchanged at $6,650 for self-only HDHP coverage and $13,300 for family HDHP coverage.
  • Adoption Assistance Exclusion and Adoption Credit. The maximum amount that may be excluded from an employee’s gross income under an employer-provided adoption assistance program and the maximum adoption credit allowed to an individual for the adoption of a child are each $13,810 (down from $13,840). Both the exclusion and the credit will begin to be phased out for individuals with modified adjusted gross income (AGI) greater than $207,140 (down from $207,580) and will be entirely phased out for individuals with modified AGI of $247,140 or more (down from $247,580).
  • Small Business Health Care Tax Credit. The average annual wage level at which the tax credit begins to phase out for eligible small employers is $26,600 (down from $26,700). The maximum average annual wages for tax-credit eligibility are twice this amount, i.e., $53,200 (down from $53,400).
  • Archer MSAs. For Archer MSA-compatible high-deductible health coverage, the annual deductible for self-only coverage must not be less than $2,300 or more than $3,450 (both amounts unchanged), with an out-of-pocket maximum of $4,550 (down from $4,600). For family coverage, the annual deductible must not be less than $4,550 (down from $4,600) or more than $6,850 (unchanged), with an out-of-pocket maximum of $8,400 (unchanged).

Other 2018 limits and thresholds are unaffected. For example, the previously announced 2018 limits for salary reduction contributions to health FSAs, qualified transportation fringe benefits, and QSEHRAs have not changed. The IRS has also announced that the TCJA will not affect the 2018 dollar limitations for qualified retirement plans (see our Checkpoint article).

EBIA Comment: Now that the IRS has announced these changes, sponsors and administrators of benefits with changed limits will need to determine next steps. Some plans may need to be amended to recognize the lower limits, and the changes should be communicated to employees. Moreover, elections based on the original (higher) limits may need to be changed and excess contributions (if any) will need to be addressed. For more information, see EBIA’s Consumer-Driven Health Care manual at Sections X (“HSAs: Required HDHP Coverage”), XII (“HSAs: Contributions”), and XXXI (“Archer MSAs”); EBIA’s Fringe Benefits manual at Section III (“Qualified Adoption Assistance Programs”); and EBIA’s Health Care Reform manual at Section XXVI (“Small Business Health Care Tax Credit”).

Contributing Editors: EBIA Staff.

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