March 12, 2018

Revised 2018 Cost of Living Adjustments (article)

One of the provisions of the Tax Cuts and Jobs Act (TCJA) changed the computation of cost of living adjustments from a Consumer Price Index for all Urban Consumers (“CPI-U”) computation formula to a chained CPI-U (“C-CPI-U”) index.  This includes cost of living adjustments applicable to income, as well as certain benefit-related tax code provisions. 

To this end, the IRS has released adjusted cost of living amounts (IRS Rev Proc 2018-18) applicable to health savings accounts, Archer medical savings accounts, the wage limit applicable to the small business tax credit, and adoption assistance limits.  In addition, the IRS has made adjustments to civil penalties for certain failures.  Following are these changes:

Health Savings Accounts (HSA)

For HSA purposes, the only parameter affected by this change is the family contribution limit.  The adjusted limit for the 2018 calendar year is now $6,850 (previously $6,900).  Following is the revised cost of living table applicable to HSAs:





HDHP Annual Deductible



HDHP Annual Out-of-Pocket Limit



Contribution Limit



(previously $6,900)


As a result of the adjusted family contribution amount, if the full statutory limit has been elected for the year, the account holder should adjust his/her election to correspond to the reduced limit.  If the full statutory limit has already been contributed, then the account holder should contact the HSA trustee to obtain a refund of the excess amount.

Archer Medical Savings Accounts

The limits applicable to family high deductible health plans and the out-of-pocket expense limit for individuals have been adjusted as follows:





HDHP Annual Deductible

Between $2,300 and $3,450

Between $4,550 and $6,850

(previously, between $4,600 and $6,850)

Out-of-Pocket Expenses


(previously, $4,600)



An employer-provided adoption assistance program that meets the qualifications of IRC §137 allows participants to recover expenses relating to adoption, such as reasonable adoption fees, court costs, attorney’s fees and traveling expenses.  Below are the adjusted exclusion limits and AGI phase-out limits for 2018:



Exclusion Limit


(previously, $13,840)

AGI Phase-out Limits

Between $207,140 and $247,140

(previously, between $207,580 and $247,580)


Small Business Tax Credit (SBTC)

Small businesses and tax-exempt employers who provide health care coverage to their employees under a qualified health care arrangement are entitled to a tax credit, as established by the Affordable Care Act.  To be eligible for the small business tax credit, the employer must employ fewer than 25 full-time equivalent employees whose average annual wages are less than $53,200 (adjusted limit for 2018; previously, $53,400).  The tax credit phases out for eligible small employers when the number of its full-time employees (FTEs) exceeds 10; or, when the average annual wages for the FTEs exceeds $26,600 (adjusted limit for 2018; previously, $26,700) in the 2018 tax year.

Adjusted Tax Information Reporting Penalties

The IRS can assess penalties when certain tax information is not provided on a timely basis. Specifically, penalties may be assessed for failure to file information returns or provide payee statements, such as the Form W-2 and Form 1099, and notably, the Affordable Care Act’s Forms 1094 and 1095, or related payee statements.  Following are the adjusted penalties applicable for the 2019 tax year:

  • The penalty for failure to file a correct information return is $270 for each return for which the failure occurs, with the total penalty cap of $3,275,500 (previously, $3,282,500) for a calendar year.
  • The penalty for failure to provide a correct payee statement is $270 for each statement for which the failure occurs, with the total penalty cap of $3,275,500 (previously, $3,282,500) for a calendar year.

Special rules apply that increase the per-statement and total penalties if there is intentional disregard of the requirement to file the returns and furnish the required statements.

Other Types of Benefits

It should be noted that the cost of living adjustments applicable to pension and retirement plans for 2018 were not changed by TCJA (this was previously announced by the IRS).  In addition, no adjustments have been made thus far to plans such as flexible medical spending account plans or qualified transportation programs. 

The information contained in this article is provided as general guidance and may be affected by changes in law or regulation. This article is not intended to replace or substitute for accounting or other professional advice. Please consult a CBIZ professional. This information is provided as-is with no warranties of any kind. CBIZ shall not be liable for any damages whatsoever in connection with its use and assumes no obligation to inform the reader of any changes in laws or other factors that could affect the information contained herein. 

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