The Internal Revenue Service recently issued guidance to clarify several points related to the pre-tax limit to employee flexible spending account (FSA) contributions.
Under the terms of the Patient Protection and Affordable Care Act, pre-tax employee contributions to healthcare FSAs will be limited to $2,500 for plan years beginning on January 1, 2013. Employers with fiscal year plans can maintain their current reimbursement levels until the end of the year, at which point the new limit will go into effect.
The limit does not apply to employer nonelective contributions. It only covers salary reduction contributions under a health FSA. Organizations should keep this in mind while ensuring their HR compliance and setting up their employee benefit programs.
With the limit scheduled to take effect, the Society for Human Resource Management reports that the IRS and the Treasury Department are considering modifications to the rule that prevents FSA contributions from being used in a subsequent plan year or period of coverage. Such a change could significantly impact the nature of FSA plans.
