The IRS has announced that it will restore the family deduction limit for HSA contributions to $6,900 for 2018. The IRS had previously set this limit last spring, but earlier this year announced that changes made by the Tax Cuts and Jobs Act would lower the limit to $6,850. Although only a $50 reduction, the change presented significant difficulties to employers who had communicated the $6,900 limit to employees and built that higher limit into their plans and payroll systems. In announcing the relief, the IRS recognized the administrative hardships presented by the $50 reduction, concluding that those burdens outweighed any benefit of enforcing the lower limit.

The restoration of the $6,900 limit will be welcome news to employers whose health plans contain a Health Savings Account (HSA)—a tax-advantaged account for individuals enrolled in high-deductible health plans to save for medical expenses that their plans do not cover. Employers may—but are not required to—allow employees to repay any distribution made on the assumption that the reduced limit would apply. Regardless of whether an employee repays that amount, the guidance provides that HSA rules will not cause the employee to be taxed on the amount of the distribution.