ECFC wants clarification on modified HSA limit

The Employers Council on Flexible Compensation (ECFC) has written to the IRS requesting clarification on the modified inflation-adjusted amount for tax deductible contributions to health savings accounts (HSAs). On March 5, 2018, in Rev. Proc. 2018-18, the IRS changed the annual limitation on deductions under Code Sec. 223(b)(2)(B) for an individual with family coverage under a high deductible health plan to $6,850, which is $50 less than the contribution amount previously announced by the IRS in Rev. Proc. 2017-37.
The ECFC is requesting guidance on how to handle accounts where contributions have already been made in the maximum amount announced in Rev. Proc. 2017-37. ECFC notes that application of the current rules regarding excess contributions is administratively complex. Code Sec. 223(f)(3) prescribes the tax treatment of excess contributions that are returned to an individual prior to the due date of the participant’s return. In addition, returned contributions must reflect the net income attributed to the excess contribution and such income must be included in the gross income of the individual for the taxable year in which received. Following this complex correction methodology would require HSA trustees and custodians to determine the net income attributable to the extra $50 contribution and address reporting of this additional taxable income.
ECFC requests that the IRS provide transitional relief to HSA trustees and custodians allowing them to just return the $50 excess contribution to the individual without having to calculate and include the net income on that contribution.

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