Lauren Burke The Internal Revenue Service (IRS) released the annual cost-of-living adjustments affecting the maximum contribution limits for several pre-tax benefits, including health flexible spending accounts (health FSAs) and transit/parking accounts.
In Revenue Procedure 2022-38, the IRS confirmed that for plan years beginning on or after Jan. 1, 2023, the contribution limit for health FSAs will increase to $3,050. For those plans that allow a rollover of unused funds, the maximum rollover amount will increase by $40 to $610 for 2023.
Additionally, the monthly contribution and reimbursement limit for transit and parking FSAs will increase by $20 to $300 per account in 2023.
The 2023 limit for health savings accounts (HSAs) was previously announced in Revenue Procedure 2022-38. Please see the chart below for a summary of these changes for the new year.
|
2022 Limits |
2023 Limits |
|
|
Health FSA |
$2,850 Rollover – Up to $570 |
$3,050 Rollover – Up to $610 |
|
Transit/Parking FSA |
$280/month |
$300/month |
|
HSA |
$3,650 Single Only |
$3,850 Single Only |
|
$7,300 Family |
$7,750 Family |
Remember, FSA funds are meant to be used within a plan year. Generally, the plan year must be a fixed 12-month period. Keep in mind that health FSAs have a “use-or-lose” rule, “meaning that any funds left unused at the end of the year are forfeited to the employer.”
There are two exceptions to this rule permitted by the IRS: rollover and grace period. If funds are not used by the end of the year, up to $610 can be rolled over from the 2023 plan year into the next plan year. Alternatively, an employer can adopt a grace period for their health FSA. As explained by the IRS, “a grace period is a period of up to two months and 15 days immediately following the end of a plan year during which a participant may use amounts remaining from the previous plan year (including amounts remaining in a health FSA) to pay expenses incurred for certain qualified benefits during that two-month and 15-day period.” A health FSA may incorporate either of these features, however, a plan may not have both a rollover and grace period.
Additionally, plans may also include run-out periods that provide participants additional time to submit claims incurred during the plan year (typically 90 days). This can be in addition to either a rollover or grace period.
Here’s another read if you’re asking yourself, “is an FSA worth it?”
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