Health Care Flexible Spending Accounts (Health FSAs) will be subject to a limit on salary reduction contributions beginning January 1, 2013. The Affordable Care Act created a new $2,500 contribution limit on Health FSAs provided under a cafeteria plan. While early chatter seemed to indicate that the contribution limit would be repealed, it now seems like it is here to stay.
The $2,500 contribution limit applies on a per-participant basis. An employee and a family member who each have their own employer-based Health FSAs will have separate limits.
While many health care reform requirements apply as of the plan year beginning on or after a certain date, the FSA limit is effective January 1, 2013. The $2,500 contribution limit applies and is tracked based on the employee's "taxable year." In most cases, an employee's taxable year is the calendar year. Therefore, the $2,500 limit is effectively a calendar year (not plan year) limit.
Employers with Health FSAs that permit a salary reduction contribution in excess of $2,500 should amend their plans and prepare employee communications in advance of the January 1, 2013 effective date.
Non-calendar year Health FSAs will have to monitor employees' salary reduction contributions on a calendar year basis to avoid employees exceeding the $2,500 calendar year limitation. A non-calendar year FSA should make sure employees' FSA contributions will not exceed $2,500 when conducting enrollment for the plan year that includes the January 1, 2013 effective date. If the plan year straddles two calendar years, the plan may wish to implement a $2,500 contribution limit as of the first day of the plan year beginning in 2012, rather than waiting until 2013 to change the contribution limit.
