IRS Revises Some 2018 Limits Because of Tax Cuts and Jobs Act
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). The changes affect some of the limits that the agency had previously announced. The key revisions pertain to:
Health Savings Accounts (HSAs). The annual HSA contribution limit for individuals with self-only high-deductible health plan (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.
The 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 begin to be phased out for individuals with a modified adjusted gross income (AGI) greater than $207,140 (down from $207,580) and are entirely phased out for individuals with modified AGI of $247,140 or more (down from $247,580).
The 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 wage for tax-credit eligibility is twice this amount — $53,200 (down from $53,400).
Archer Medical Savings Accounts (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 remain unaffected. For example, the previously announced 2018 limits for salary reduction contributions to health Flexible Spending Accounts, qualified transportation fringe benefits and qualified small employer Health Reimbursement Arrangements haven’t changed. The IRS has also announced that the TCJA won’t affect the 2018 dollar limitations for qualified retirement plans.
Now that the agency has announced these changes, sponsors and administrators of benefits with changed limits will need to determine their 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.
Attention ALEs: Sample Notice of 2015 liability now available
The IRS has released sample Notice CP 220J, which will be used to notify applicable large employers (ALEs) that the IRS has charged them an employer shared responsibility payment (ESRP) for one or more months. Such payments are the result of the Internal Revenue Code Section 4980H penalty that may be assessed against ALEs that fail to offer adequate health coverage to full-time employees and their dependents under the Affordable Care Act.
The Notice follows last year’s release of Letter 226-J (the initial letter notifying ALEs of a proposed ESRP) and Forms 14764 (an ALE’s response to a proposed ESRP) and 14765 (a list of employees receiving a premium tax credit). ALEs may use Form 14765 to change information previously reported on Forms 1095-C, potentially reducing or eliminating their ESRP liability. The IRS noted in Letter 226-J that it would review information submitted by ALEs and contact them, or would send nonresponding ALEs a notice and demand for the proposed ESRP.
The sample Notice CP 220J indicates that it’s for the tax period ending December 31, 2015, and states an amount due of $0. Presumably, this is just for purposes of the sample document and explains why the Notice also states that the ALE doesn’t owe the IRS any money. Actual notices are expected to include a dollar amount, with instructions for making payments, and omit the statement that money isn’t owed.
The Notice provides summary information about the ESRP, including circumstances that can trigger liability, and it describes steps the ALE can take to challenge the payment. A reminder is included that the ESRP isn’t deductible for federal income tax purposes.