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2023 Health FSA Contribution Cap Rises to $3,050

October 19 - Posted at 1:12 PM Tagged: , , , , , ,

Employees can put an extra $200 into their health care flexible spending accounts (health FSAs) next year, the IRS announced on Oct. 18, as the annual contribution limit rises to $3,050, up from $2,850 in 2022. The increase is double the $100 rise from 2021 to 2022 and reflects recent inflation. 

If the employer’s plan permits the carryover of unused health FSA amounts, the maximum carryover amount rises to $610, up from $570. Employers may set lower limits for their workers.

The limit also applies to limited-purpose FSAs that are restricted to dental and vision care services, which can be used in tandem with health savings accounts (HSAs).

The IRS released 2023 HSA contribution limits in April, giving employers and HSA administrators plenty of time to adjust their systems for the new year. The individual HSA contribution limit will be $3,850 (up from $3,650) and the family contribution limit will be $7,750 (up from $7,300).

CARRYOVER AMOUNTS OR GRACE PERIOD

Health or dependent care FSA funds that are not spent by the employee within the plan year can include a two-and-a-half-month grace period to spend down remaining FSA funds, if employees are enrolled in FSAs that have adopted the grace period option.

Health FSAs have an additional option of allowing participants to carry over unused funds at the end of the plan year, up to an inflation-adjusted limit set by the IRS, and still contribute up to the maximum in the next plan year. Health FSA plans can elect either the carryover or grace period option but not both.

Dependent Care FSAs

A dependent care FSA (DC-FSA) is a pretax benefit account used to pay for dependent care services such as day care, preschool, summer camps and non-employer-sponsored before or after school programs. Funds may be used for expenses relating to children under the age of 13 or incapable of self-care who live with the account holder more than half the year. 

These plans may also be referred to as dependent care assistance plans (DCAPs) or dependent care reimbursement accounts (DCRAs).

In general, an FSA carryover only applies to health FSAs, although COVID-19 legislation permitted a carryover of unused balances for DC-FSAs into the next plan year for plan years 2020 and 2021 only.

The dependent care FSA maximum annual contribution limit is not indexed and did not change for 2022 or for 2023. It remains $5,000 per household for single taxpayers and married couples filing jointly, or $2,500 for married people filing separately. Married couples have a combined $5,000 limit, even if each has access to a separate DC-FSA through his or her employer.

Maximum contributions to a DC-FSA may not exceed these earned income limits:

  • For single account holders, the earned income limit is their salary excluding contributions to their DC-FSA.
  • For married account holders, the earned income limit is the lesser of their salary excluding contributions to their DC-FSA or their spouse’s salary.

Employers can also choose to contribute to employees’ DC-FSAs. However, unlike with a health FSA, the combined employer and employee contributions to a DC-FSA cannot exceed the IRS limits noted above.

A separate tax code child and dependent care tax credit cannot be claimed for expenses paid through a DC-FSA, as “double dipping” is not permitted.

 

IRS Publishes 2018 Indexed Figures

October 24 - Posted at 10:34 AM Tagged: , , , , , , , , , ,
The IRS recently published indexed figures for 2018 including changes to the following:

Maximum H.S.A. Annual Contribution Limits-
  • 2018- $3450 Self / $6900 Family 
  • $2017- $3400 Self / $6750 Family
The H.S.A. catch up limit for individual age 55 and over will remain at $1000.

Medical Plan Maximum Out of Pocket Limits-
  • 2018- $7350 self / $14,700 Family
  • 2017- $7150 self / $14,300 Family
The 2018 FSA annual contribution limit was increased from $2600 to $2650. Dependent Day Care Assistance contribution limit  remains at $5000 if single head of household or married and filing jointly ($2500 if married and filing separately). 
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