Health FSA (Flexible Spending Account) 2019 Limit Increases
The Internal Revenue Service released Revenue Procedure 2018-57 on November 15, 2018.Â This IRS release increases the health FSA (Flexible Spending Account) dollar limit on employee salary reduction contributions for taxable years beginning in 2019.Â The dollar limit has been increased to $2,700 from $2,650 in 2018.Â The Affordable Care Act (ACA) imposes a dollar limit on employeesâ€™ salary reduction contributions to health FSAs offered under cafeteria plans, it is indexed for cost-of-living adjustments, and may be increased annually.
Employers â€“ Steps to take
- Ensure the organizationâ€™s health FSA does not permit employees to make pre-tax contributions in excess of $2,700 for 2019
- Amend plan documents accordingly
- Communicate that increased limit to their employees.
It is important to note that employers may impose their own health FSA limit, so long as it does not exceed the ACAâ€™s maximum limit for the plan year.Â For example, an organization may continue to use the 2018 maximum limit of $2,650 for the 2019 plan year.
Employees – Â Contribution Limits
- Each employee is limited to $2,700 in salary reductions in 2019, regardless of whether their family members benefit from the funds in the health FSA
- For each family member that has a separate health FSA, they will each have a $2,700 salary reduction limit
- For employees who participate in several cafetria plans falling under a common control employer group, those total health FSA salary reduction contributions under all of their cafeteria plans are still limited to $2,700
- For employees with health FSAs through two or more unrelated employers, those employees can make salary reductions of up to $2,700 under each health FSA.
- These limits are subject to any lower employer limits
Salary Reduction Contributions for a Health FSA
The $2,700 limit on health FSA salary contributions is imposed by the ACA.Â Employer matching contributions or flex credits generally do not count toward the dollar limit.Â If employees are able to opt in to receive an employer contribution in cash or a taxable benefit, then that contribution will be treated as a salary reduction and will count towards the dollar limit.
Keep in mind, the dollar limit does not impact contributions under other employer-provided coverage:
- Employee salary reduction contributions to an FSA for dependent care assistance or adoption care assistance
- Salary reduction contributions to a cafeteria plan that are used to pay for an employeeâ€™s share of health coverage premiums
- Contribtuions to a Health Savings Account (HSA)
- Or to amounts made available by an employer under a Health Reimbursement Arrangement (HRA)
Grace Periods and â€śUse it or Lose itâ€ť Rule
A grace period of up to two months and 15 days immediately following the end of a plan year can be included with a cafeteria plan.Â If a grace period is included in your organizationâ€™s plan, employees may utilize those amounts that remain from the previous plan year, including any amounts in a health FSA, to pay for expenses related to certain qualified benefits during the grace period.Â Any unused salary reduction contributions that are carried over do not count against the $2,700 limit applicable to the following year for the health FSA with a grace period.
A â€śuse it or lose itâ€ť rule generally prohibits any contributions or benefits under a health FSA to be used in a following plan year.Â However, there is an exception –Â if a health FSA does not include a grace period, a carryover of up to $500 (unused funds) may be allowed into the following plan year.Â The carryover does not affect the limit on salary reductions, therefore, participants may elect the $2,700 limit in salary reductions in addition to the $500 in carryover funds.
To avoid complications, it is always best to discuss plan specifics in regard to ACA changes with your broker on a yearly basis.Â For more information regarding Employee Benefits for your organization, or to speak with one of our advisors, email Jason Della Penna, Senior Vice President at Brown & Brown Benefit Advisors at email@example.com.