2023 Health FSA Maximum Announced
October 24, 2022
On Tuesday, October 18, the Internal Revenue Service (IRS) announced the health flexible spending account (FSA) maximum for 2023 as part of Revenue Procedure 2022-38. The maximum employee contribution to health FSAs will be $3,050 for taxable years beginning in 2023, up $200 from 2022.
Non-elective employer contributions to health FSAs (for example, matching contributions or flex credits) generally do not count toward this limit. However, if employees can elect to receive the employer contributions in cash or as a taxable benefit, then the contributions will be treated as salary reductions and will count toward the limit.
Health FSA plans are permitted to offer either a grace period or a carryover feature – but not both. Neither of these features affect the maximum employee salary reduction.
A grace period gives an employee an additional two months and 15 days, immediately following the end of a plan year, to incur new expenses. Any amounts remaining at the end of the grace period must be forfeited. Amounts carried over into the grace period do not count toward the $2,850 limit applicable to the following plan year.
The carryover feature allows employees to roll over up to 20% of the maximum salary reduction contribution for that year. Therefore, the maximum amount that can be carried over to 2023 is $570, based on the 2022 maximum contribution of $2,850 ($2,850 x 20% = $570). Such a carryover does not affect the limit on salary reduction contributions. This means the plan may allow the individual to elect up to $3,050 in salary reductions for 2023 in addition to the $570 that may be carried over from 2022.
Employers are not required to adopt the IRS health FSA maximum, and may instead adopt a different maximum limit for the plan year, as long as it does not exceed the IRS’s maximum limit. For example, an employer could set its health FSA limit at $2,000 or $2,500. All employers should look at what is stated in their plan materials, and determine whether an amendment is required.
The above information does not constitute advice. Always contact your employee benefits broker or trusted adviser for insurance-related questions.
Holly leads Hylant’s ongoing efforts to provide our clients with compliance consulting services on new developments as well as ongoing requirements affecting health and welfare plans. She possesses a deep understanding of federal and state regulations pertaining to employee benefit plans, as well as extensive experience in group benefit plan operation.