|January 2023 Volume 21, Number 1|
Annual Health FSA Contribution Limit to Increase in 2023
On October 18th, the IRS announced that the annual contribution limit in 2023 for health flexible spending accounts (health FSAs) will be increased to $3,050 — double the $100 increase from 2021 to 2022.
The maximum carryover amount is also rising. If an employer's plan allows unused health FSA amounts to be carried over to the following year, the amount will now be $610.
Healthcare Flexible Spending Account Limits Rise
A flexible spending account (FSA) is a type of salary reduction account that allows individuals to set aside pre-tax money from their pay checks each month for health, dental and vision care expenses such as doctor's visits and prescriptions not covered by insurance.
Employer Contributions to Health FSAs
Employers also have the option to contribute to employee health FSAs. These employer contributions are in addition to the IRS limit.
Increases Do Not Apply to Dependent Care FSAs
These increases do not apply to dependent care FSAs. The dependent care FSA (DC-FSA) allows eligible taxpayers to set aside a portion of their income to pay for qualifying dependent care expenses.
Commuting Benefits Increases
The IRS has announced that the limit on qualified transportation benefits will be increased $20 per month in 2023. Therefore, the new monthly limit for transit passes and van pool services will be $300, and the limit for qualified parking will also be $300. Under current law, employer-funded parking and mass-transit subsidies are tax-exempt for employees. Employees can also use pretax income to pay their own mass transit or workplace parking costs through an employer- sponsored salary deferral program.
Adoption Benefits Rise
For 2023, the maximum amount an employer can subsidize for eligible child-adoption expenses that can be excluded from an employee's gross income is $15,950, up from $14,890 for 2022.
Qualified Small Employer HRA Limits Increase
Qualified small employer health reimbursement arrangements (QSEHRA) also saw an increase for 2023. The maximum annual limit for QSEHRAs is $5,850 for individual coverage and $11,800 for family coverage.