November 1, 2013 – Caps on Health FSA Contributions Unchanged for 2014
Health care reform imposes an annual cap on the amount of salary reduction contributions that may be made to a health flexible spending account (health FSA). The initial cap was $2,500, but the statute provides that it is indexed for inflation.
Yesterday the IRS released Revenue Procedure 2013-35, which contains cost-of-living adjustments for various tax-related amounts that are indexed for inflation. As indicated in this guidance, the IRS has decided not to increase the cap on health FSA salary reduction contributions for plan years beginning in 2014. Accordingly, the maximum amount participants may contribute to a health FSA during the 2014 plan year will remain at $2,500.
The IRS also has released guidance authorizing a limited carryover feature for health FSAs. That guidance indicates that any carryover amounts will not be counted against the cap on salary reduction contributions. We will be addressing the carryover guidance more fully in a subsequent alert.
If you have any questions, please contact us.
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The information contained in this ALERT is intended for general information purposes only and does not constitute legal advice relative to a specific situation.