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New $2,600 Health FSA Limit for 2017 increased to $2,650 in 2018
On October 25, 2016, the IRS released Revenue Procedure 2016-55, which officially raises the health Flexible Spending Account (FSA) salary reduction contribution limit to $2,600 for taxable years beginning in 2017. This $50 increase over the prior maximum, along with a number of other inflation adjustments, was previously suspected but unconfirmed.
For 2018 New Limits see: 2018 Contribution Limits Set for Benefit Plans — IRS
As a quick refresher, prior to the Affordable Care Act (ACA), higher health FSA salary reduction contribution limitations were quite common, with many employers using a $5,000 or higher annual limit in their plan documents. The ACA initially limited these annual contributions to $2,500, a figure which has since been adjusted three times since 2014.
Some health FSAs incorporate a hard dollar maximum figure in their plan documents; in those cases, a plan amendment is necessary to increase the dollar limit for future years if the sponsoring employer desires to allow employees the highest possible pre-tax savings opportunity. Other plans incorporate the maximum limit allowed by law, which, for plan years beginning in 2017, will now be $2,600 ($2,650 in 2018)
With annual open enrollment underway or imminent for most plan sponsors, HR and benefits teams should confirm whether amendments to plans or enrollment systems and/or communications are necessary in order to address this update. It might not be too late to alert the printer to change the $2,550 figure to the new $2,600 health FSA limit for 2017 in open enrollment materials.
DCAP and Transit/Parking Limits Unchanged
The annual maximum for Dependent Care Assistance Plan FSAs remains at $5,000 for couples filing jointly and $2,500 for those filing separately. Also, the annual Transporation benefit remains at $255 each for parking and transit passes.
Employees Save up to $1,040* with Tax-Free Medical, Dental, Vision Expenses at Work
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Health Flexible Spending Account (FSA), previously known as Medical Expense Reimbursement Plans or Medical FSA plans are special accounts that allow employees to use up to $2,600 in 2017 (increased to $2,650 in 2018) in pre-tax dollars to pay for out of pocket medical, dental and vision care expenses not covered by other insurance.
The Health FSA reduces payroll taxes for both the employer and the employee making it a popular benefit option. For the employee it’s like getting a 30% to 40% discount on medical, dental and vision care expenses. The employer realizes up to 7.65% in matching FICA tax savings.
Employers recoup the small $129 one-time setup fee quickly and then continue to realize tax savings year after year.
* Tax Savings Calculations
– $2,600 Maximum X up to 40% payroll taxes = up to $1,040 savings per employee
– $2,600 Maximum X 7.65% Matching FICA Tax = $198.90 savings to the employer per employee
Core Documents provides employers with everything they need to establish an IRS- and DOL-compliant Section 125 Health FSA plan in PDF format for just $129. This cost reflects a one-time setup fee, not an annual charge. For an additional $50, employers can choose the Deluxe Binder option that includes the PDF email version plus a printed plan document in a 3-ring binder.
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Core Documents will notify you when there are sufficient changes in the Code to require amending and restating your Plan. You can amend and update anytime for just $99, and only when necessary which is the most cost effective way to establish and maintain a Section 125 Health FSA Plan.
**Most complete document orders placed by 3 PM will be emailed out the same day Monday through Friday. Orders placed on weekends are emailed out Monday morning. Keep in mind that December, January, and February are our busiest months of the year and documents are processed in the order they are received. The Rush Order fee ($25) simply brings your document to the top of the stack to be processed immediately.
Additional blog posts on topics related to the new health FSA limit for 2017 and related topics:
Guidance on HRAs, FSAs and the Affordable Care Act (ACA)
FSA, HSA, and HRA: What’s the difference?
Employer Funded Health FSA W2 Reporting Guidance – HRA and HSA Excluded
Coupling High-Deductible Health Insurance with HSA, HRA, or FSA plans
HSA Plan and Health FSA Combined – What is a Limited-Purpose FSA?
Helping Employers Avoid Audit Disasters for Section 125 and HRA Benefits — Core Documents Launches Campaign
Section 125 Premium Only Plan Document – $99 by Core Documents