This problem can only be fixed by IRS or Maryland Legislature.
It is hard to explain so I am including a link that explains it better than any so far.
This has had very little coverage on the internet.
I would love to hear from others on how they are being directed to handle this by HR departments or Insurance Agent.
The article is quite specific ... no 2018 HSA contributions should be made until this is resolved ...
Emergency legislation is expected to be introduced in the upcoming General Assembly session, which convenes on Jan. 10. If this legislation is passed in the 2018 session, there is still a strong possibility it will NOT BE retroactive to Jan. 1, 2018.
Based on the current circumstances, it is fairly certain there will be no resolution to this issue by Jan. 1. Therefore, until a fix is made, CPAs will need to advise their clients that HDHPs do not exist in Maryland as of Jan. 1, 2018 and that HSA contributions made before the issue is resolved are in danger of being disallowed and potentially subject to penalty.
The "penalties" referred to in the article are for excess contributions that are not withdrawn before the due date of the return next year.
If the Maryland Legislature or the IRS addresses the issue to allow HSA contributions to be deductible in Maryland at some point in 2018, then all the contributions up to the limit should be allowable, because the last month rule comes into play so long as the taxpayer is still covered by an HDHP on December 1, 2018 - this rule sets the annual contribution limit to the maximum, as if the taxpayer had been in the HDHP all year.
Of course, if the taxpayer is not in an HDHP on December 1, 2018, then the month(s) in which the HSA contributions were not allowed would have to be added to the other months the taxpayer was not in the HDHP for computing the annual limit for 2018.
In any case, HSA contributions should be held up, but if one of the two agencies "fixes" the problem before December 1, 2018, then the regular amount for the year can still be eventually contributed without penalty. Alternatively, if the two agencies don't eventually fix the problem, the taxpayer can still continue to make the contributions, but know that he/she will have to withdraw those contributions as a "Mistaken Contribution" before the return's due date. In this case, there will be no deduction for the contributions, but no penalty for excess contributions, either.
The Treasury Department and the IRS are aware that certain states require benefits for
male sterilization or male contraceptives to be provided without a deductible, and that
individuals have enrolled in health insurance policies and other arrangements that otherwise
would qualify as HDHPs with the understanding that coverage for male sterilization or male
contraceptives without a deductible did not disqualify the policies or arrangements from being
HDHPs. The Treasury Department and IRS also understand that certain states may wish to
change their laws that require benefits for male sterilization or male contraceptives to be
provided without a deductible in response to this notice, but may be unable to do so in 2018
because of limitations on their legislative calendars or for other reasons. Until these states are
able to change their laws, residents of these states may be unable to purchase health insurance
coverage that qualifies as an HDHP and would be unable to deduct contributions to an HSA.
*Accordingly, this notice provides transition relief for periods before 2020 (including
periods before the issuance of this notice), to individuals who are, have been, or become
participants in or beneficiaries of a health insurance policy or arrangement that provides benefits
for male sterilization or male contraceptives without a deductible, or with a deductible below the
minimum deductible for an HDHP. For these periods, an individual will not be treated as failing
to qualify as an eligible individual under section 223(c)(1) merely because the individual is
covered by a health insurance policy or arrangement that fails to qualify as an HDHP under
section 223(c)(2) solely because it provides (or provided) coverage for male sterilization or male
contraceptives without a deductible, or with a deductible below the minimum deductible for an
<a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-drop/n-18-12.pdf">https://www.irs.gov/pub/irs-drop/n-18-12.pdf</a>