Flexible Spending Accounts (FSAs) are a valuable employee benefit that allows individuals to set aside pre-tax dollars for eligible health care and dependent care expenses. As we enter 2023, it’s essential for both employers and employees to be aware of the updated FSA limits, which can impact how much money can be contributed and used for qualified expenses.
The Internal Revenue Service (IRS) reviews and adjusts the FSA limits annually based on inflation and other economic factors. For 2023, the FSA contribution limits are as follows:
Health Care FSA. For the 2023 plan year, the Health Care FSA contribution limit has been increased to $3,050 per employee. This is a $200 increase from the 2022 limit of $2,850. Employees can use these funds to cover various qualified medical, dental, and vision care expenses that are not covered by their insurance plans. Some examples of eligible expenses include copayments, prescription medications, and certain over-the-counter medical supplies.
Dependent Care FSA. The Dependent Care FSA contribution limit for 2023 remains unchanged at $5,000 per year for individuals or married couples filing jointly, and $2,500 for those who are married but filing separately. These funds can be used to pay for eligible dependent care expenses, such as childcare for children under 13, care for disabled dependents, or elder care for qualifying individuals.
Carryover and Grace Period Provisions. Employers have the option to offer either a carryover provision or a grace period for Health Care FSAs, but not both. The carryover provision allows employees to carry over up to $610 of unused FSA funds from the previous plan year into the new plan year. The grace period provides employees with an additional 2.5 months after the end of the plan year to incur and submit eligible expenses using the remaining FSA balance. For Dependent Care FSAs, there is no carryover provision. However, employers may choose to offer a grace period of up to 2.5 months following the end of the plan year for employees to incur eligible dependent care expenses.
As we move into 2023, it’s crucial for both employers and employees to be aware of the updated FSA limits and plan accordingly. Health Care FSA limits have increased slightly, offering more pre-tax savings for eligible medical expenses. By staying informed about these changes and managing FSA contributions effectively, employees can maximize their tax savings and ensure they have the necessary funds to cover eligible health and dependent care expenses throughout the year.
This information is not intended to be exhaustive, nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice. ©2023 Angus McRae Insurance Brokerage Services, Inc. All rights reserved.