1. IRS Clarifies $2,500 Health Flexible Spending Account Limit

    On May 30, 2012, the Internal Revenue Service issued guidance for employers and employees on the $2,500 limit on contributions to health flexible spending accounts (FSAs) as mandated by the Affordable Care Act. 

    For your reference, three takeaways from the IRS notice:

    1. The limit doesn’t take effect until next year:

    “Notice 2012-40 … clarifies that the $2,500 limit on salary reduction contributions to health FSAs would not apply for plan years that begin before 2013. In other words, for FSAs that provide coverage on the basis of a period other than the calendar year, the limit will not become applicable until the coverage year that begins in 2013. So if, for example, the plan has a plan year of July 1 through June 30, salary reduction contributions could be made without regard to the $2,500 limit through June 30, 2013; the $2,500 limit would first apply to the period July 1, 2013 – June 30, 2014.” (Flexible Spending Account Limitation Put Off by Ford & Harrison LLP) 

    2. The $2,500 cap only applies to health FSAs:

    “The guidance makes clear that the contribution limit applies only to employee salary reduction contributions to health FSAs. The limit does not apply to non-elective employer contributions, employee salary reduction or other contributions to other types of FSAs, health savings accounts, health reimbursement arrangements or for payment of an employee’s share of his or her health care coverage premiums.” (Treasury Releases Important Health Flexible Spending Arrangement Guidance by Ropes & Gray LLP) 

    3. The limit applies separately to each employee:

    “The $2,500 limit applies on an employee-by-employee basis per controlled group employer. Therefore, if only one spouse is employed, $2,500 is the limit regardless of how many dependents are potentially covered by the health FSA. However, if both spouses are employed, each may elect salary reduction contributions to an FSA, up to $2,500, even if both participate in the same health FSA sponsored by the same employer.” (IRS Issues Guidance on $2,500 FSA Limit and Other Cafeteria Plan Issues by Davis Wright Tremaine LLP) 

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    See also:

    • Health Care Reform: IRS Releases Guidance on $2,500 Health FSA Contribution Limit (Proskauer Rose LLP) 

    • How Do Non-Calendar Year Cafeteria Plans Comply With the $2,500 Health FSA Limit? (Davis Wright Tremaine LLP) 

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