Undoing its guidance announced in Revenue Procedure 2018-18, the IRS has reinstated the $6,900 Family HSA contribution limit for 2018. In our March 9, 2018 client alert, we explained that the IRS, after initially setting a $6,900 Family HSA contribution limit for 2018, reduced the limit to $6,850. In that alert, based on the IRS guidance in place at the time, we indicated that employees who had already contributed $6,900 prior to the issuance of Revenue Procedure 2018-18 should receive a return of the excess contribution in 2018. If you already followed the prior IRS guidance and returned the excess contribution in 2018, read on to see the IRS’ guidance on the tax treatment of such distributions.
Repay to the HSA the Distributed Excess Contribution
Excess contributions which have been distributed to an individual may be repaid to the HSA and treated as made because of a mistake of fact due to reasonable cause. Accordingly, any such repayment made to the HSA by April 15, 2019, would not be included in an individual’s gross income, subject to the 20% additional tax, or subject to the tax on excess contributions. Note that a trustee or custodian may, but is not required to, allow an individual to repay mistaken distributions.
Not Repay to the HSA the Distributed Excess Contribution
Excess contributions which have been distributed and not repaid to the HSA may be excluded from an individual’s gross income and not subject to the 20% additional tax, so long as the distribution is received by the individual on or before the last day prescribed by law (including extensions of time) for filing such individual’s 2018 tax return. Note, however, that additional considerations apply if any portion of the excess distribution is attributable to employer contributions made through a cafeteria plan election or otherwise.
Revenue Procedure 2018-27 can be found here.