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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 Releases New 2015 Limits for Health FSA

November 04 - Posted at 3:01 PM Tagged: , , , , , , , ,

The IRS and Social Security Administration released the 2015 cost-of-living (COLA) adjustments that apply to health flexible spending accounts (FSAs) in Revenue Procedure 2014-61. The new annual limit for health FSAs, including general-purpose and limited-purpose health FSAs, is $2,550 for plan years starting on or after January 1, 2015.

The $2,550 limit is prorated for short plan years (plan years that are shorter than 12 months) and any carry over amount from participants’ previous plan years may be added to the limit. For instance, participants may elect $2,550 for the 2015 plan year and carry over a maximum of $500 from the previous plan year, making their total account value $3,050 for the 2015 plan year.  In other words, the $500 carryover does not count against or affect the $2,550 salary reduction limit. Please note that an employer must decide to allow to either offer participants a option of a max $500 carryover OR the 2.5 month extension to use funds. An employer can not offer both options under their plan.

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