The IRS has issued Revenue Procedure 2018-18 (March 5, 2018), which modifies certain cost-of-living adjustments to dollar limits for 2018 affecting health and welfare arrangements. The guidance supersedes certain limits for 2018 that were issued in October 2017, including a limit for health savings accounts (HSAs) (Revenue Procedures 2017-37 and 2017-58; see Legal Update, IRS 2018 Benefit Plan Limit Adjustments Include Limits for QSEHRAs).

The updated limits under Revenue Procedure 2018-18 reflect a change to indexing made by the December 2017 tax reform legislation (Tax Cuts and Jobs Act (TCJA), Pub. L. No. 115-97 (2017); see Legal Update, Tax Reform Is Enacted, With Significant Implications for Executive Compensation and Employee Benefits).

Under the IRS's October 2017 guidance, the annual HSA contribution limit for 2018 was:

Revenue Procedure 2018-18 reduces the contribution limit for family coverage to $6,850, though the limit for self-only coverage is unchanged (see Practice Note, Defined Contribution Health Plans: Health Savings Accounts (HSAs)).

(Regarding other recent IRS guidance affecting HSAs, see Legal Update, IRS Addresses Male Sterilization and Male Contraceptive Benefits and HSA Eligibility.)

However, Revenue Procedure 2018-18 did not change the 2018 limit for health flexible spending arrangements (health FSAs), which remains $2,650 (see Practice Note, Cafeteria Plans: Flexible Spending Arrangements).

Under Revenue Procedure 2018-18, the maximum credit allowed for adoption of a child is $13,810 (reduced from $13,840). In addition, the adoption credit:

(See Practice Note, Fringe Benefits: Adoption Assistance Programs.)

The maximum amount that can be excluded from an employee's gross income for adoption of a child under an employer's adoption assistance program is $13,810 (decreased from $13,840). As with the adoption credit, the exclusion:

Revenue Procedure 2018-18 also affects the deductibles and out-of-pocket limits for high-deductible health plans (HDHPs) associated with Archer medical savings accounts (Archer MSAs), as follows:

Under the Affordable Care Act's (ACA's) small business health care tax credit, the maximum credit is phased out based in part on an employer's average annual wages in excess of $26,600 (decreased from $26,700) for 2018. The $26,600 amount also is used in calculating who is an eligible small employer for the credit (see Practice Notes, Small Business Health Care Tax Credit Under the ACA and Affordable Care Act (ACA) Overview).

In addition, Revenue Procedure 2018-18 reduces the calendar year limits for penalties regarding: