Q&A: Flexible Spending Accounts
An employer-sponsored flexible spending account (FSA) is a popular benefit program that allows employees to set aside money on a pre-tax basis to pay for unreimbursed health care expenses. Funds not used by the end of the year could be lost by the employee if their employer doesn’t have a plan designed with a limited rollover option.
Consequently, employees need to be aware of the timeframe they have to use the funds and the maximum amount that can be put aside.
Is the 2017 FSA maximum of $2,600 based on the calendar year or the plan year if it falls outside of January to December? Is it true that the contribution amount is unlimited beginning in 2018?
FSA maximums and contributions are based on the plan year, not the calendar year. Therefore, the $2,600 contribution for 2017 is for plan years that begin on or after Jan. 1, 2017. In 2012, the IRS issued guidance confirming that the term “taxable year” in § 125(i) refers to the plan year of the cafeteria plan, not an individual employee’s tax year.
Information about maximum FSA contribution limits for 2018 is not yet available. The American Health Care Act (AHCA), which was passed by the U.S. House of Representatives as an option to repeal and replace most of the Affordable Care Act, included a provision that would eliminate maximum contributions for plan years beginning in 2018. The proposed bill has moved to the U.S. Senate. At this point, we do not know what the contribution limits will be for plan years beginning in 2018. If the AHCA or a similar measure is not passed this year, the IRS typically releases next year’s limits (for plans beginning on or after Jan. 1, 2018), along with other inflation-adjusted benefits caps, near the end of the calendar year. For example, the 2017 limits were released in IRS Rev. Pro. 2016-55 on or around Oct. 25, 2016.