Health FSA Limit

Health FSA Limits

November 4, 2014

The Affordable Care Act (ACA) imposed a $2,500 limit on salary reduction contributions to a health flexible spending account (FSA) offered under a cafeteria plan, effective for plan years beginning on or after Jan. 1, 2013.

The IRS recently announced that for taxable years beginning in 2015, the dollar limitation on employee salary reduction contributions to a health FSA will increase from $2,500 to $2,550.  The limit applies on a plan year basis and is effective for plan years beginning after Jan. 31, 2014.

The health FSA limit potentially will be further increased for cost-of-living adjustments for later years.

PER employee LIMIT

The health FSA limit applies on an employee-by-employee basis. Each employee may elect only up to $2,550 in salary reductions, regardless of whether or not he or she also has family members who benefit from the funds in that FSA.

However, each family member who is eligible to participate in his or her own health FSA will have a separate limit. For example, a husband and wife who have their own health FSAs can both make salary reductions up to $2,550 per year (subject to any lower employer limits).

If an employee participates in multiple cafeteria plans that are maintained by employers under common control, the employee’s total health FSA salary reduction contributions under all of the cafeteria plans are limited to $2,550. However, if an individual has health FSAs through two or more unrelated employers, he or she can make salary reductions up to $2,550 under each employer’s health FSA.

Salary reduction CONTRIBUTIONS

The ACA imposes the $2,550 limit on health FSA salary reduction contributions. Non-elective employer contributions to a health FSA (for example, matching contributions or flex credits) generally do not count toward the $2,550 limit. However, if employees may elect to receive the employer contributions in cash or as a taxable benefit, then the contributions will be treated as salary reductions and will count toward the $2,550 limit.

In addition, the limit does not impact contributions under other employer-provided coverage. For example, employee salary reduction contributions to an FSA for dependent care assistance or adoption care assistance are not affected by the $2,550 health FSA limit. The limit also does not apply to salary reduction contributions to a cafeteria plan that are used to pay for an employee’s share of health coverage premiums, to contributions to a health savings account (HSA) or to amounts made available by an employer under a health reimbursement arrangement (HRA).

Grace period

A cafeteria plan may include a grace period of up to two months and 15 days immediately following the end of a plan year. If a plan includes a grace period, an employee may use amounts remaining from the previous plan year, including amounts remaining in a health FSA, to pay for expenses incurred for certain qualified benefits during the grace period. If a health FSA is subject to a grace period, unused salary reduction contributions that are carried over into the grace period do not count against the $2,550 limit applicable to the following plan year.

To download, click here: Health FSA Limit
This Legislative Brief is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice.