Buried in the December 2017 tax legislation is a provision that changes the method that the Internal Revenue Service (“IRS”) uses to determine cost of living adjustments to annual dollar limits applicable to health plans and some other benefits.

Applying the new methodology, the IRS announced this week that the 2018 family health savings account (“HSA”) contribution limit is being reduced from $6,900, which the IRS announced last year would be in effect for 2018, to $6,850.

Employers whose employees are making HSA contributions via payroll deductions may need to make adjustments to those deductions to take into account the reduced limit.

A more vexing problem is what to do about individuals who have already made a 2018 family HSA contribution of $6,900, based upon the previously announced limit. The IRS has not provided any guidance on this question, but the likelihood is that the extra $50 will be treated as an excess contribution, which will need to be adjusted for net earnings and removed from the HSA by the due date of the individual’s 2018 tax return in order to avoid negative tax consequences, including a potential 6 percent excise tax on the excess contribution.