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The IRS recently increased the health flexible spending accounts (FSAs) dollar limit on employee salary reduction contributions for 2023 plan years. According to the Affordable Care Act (ACA), a dollar limit is imposed on employees’ salary reduction contributions to health FSAs. This dollar limit is indexed for cost-of-living adjustments and may be increased each year.
For taxable years beginning in 2023, the health FSA dollar limit on employee salary reduction contributions has increased to $3,050. The carryover limit for a health FSA has also increased to $610.
Employers should ensure that their health FSA doesn’t allow employees to make pre-tax contributions more than $3,050 for 2023. The new limit should also be communicated to employees during the open enrollment process.
An employer may continue to impose its own health FSA dollar limit, as long as it doesn’t exceed the ACA’s maximum limit in effect for the plan year.
The health FSA limit applies on an employee-by-employee basis. Employees may only elect up to $3,050 in salary reductions in 2023, regardless of whether they have family members who benefit from the FSA funds. Each family member who is eligible to participate in their own health FSA will have a separate limit.
Download the bulletin for more details.