In March 2018, the IRS released Revenue Procedure 2018-10, which, for some tax-related formulas, adjusted the annual inflation factor from the Consumer Price Index (CPI) to a new factor called a “chained CPI.” This is retroactively effective to January 1, 2018.
As a result of the change, the 2018 family contribution limit for health savings account contributions is lowered to $6,850 from $6,900.
Formula for Net Income
The net income on an excess HSA contribution is calculated using the following formula:
Net income = Excess Contribution × ((Adjusted Closing Balance − Adjusted Opening Balance) ÷ Adjusted Opening Balance)
The Adjusted Opening Balance is the sum of the excess contribution and the balance immediately before that excess contribution was made (that is, the balance at the start of the computation period).
The Adjusted Closing Balance is the balance immediately prior to distribution of the excess contribution (that is, the balance at the end of the computation period), plus any distributions or transfers made during the computation period.
Originally Published By United Benefit Advisors