Under the Patient Protection and Affordable Care Act (PPACA), health care Flexible Spending Accounts (FSAs) will have a newly-imposed $2,500 maximum contribution limit effective January 1, 2013. Maximum contribution limits will then be adjusted for inflation – or deflation – in subsequent tax years.
This new $2,500 limit pertains to all plans, even those grandfathered under other provisions of the PPACA. Currently, there are no regulated limitations to FSA contributions, though many employers opt to cap individual contributions at $5,000. Under this new provision, employers also have the option of capping their company’s FSA limit under the $2,500 benchmark.
Timing is Everything.
This new provision is based on the calendar year, meaning that employees must not exceed $2,500 in FSA contributions from January 1, 2013 through December 31, 2013. That’s pretty straightfoward for plan years that run on a calendar year basis, but far more challenging for companies that have mid-year renewal dates.
Let’s say your company’s plan year runs from July 2012 to June 2013, and your current FSA annual maximum is $5,000. If this maximum goes unchanged for the upcoming July 2012 renewal date, any employee who opts for the full $5,000 FSA maximum in July will reach the new federally-regulated limit just six months into the new plan year. This could result in adverse tax consequences for those employees – as well as the plan.
GSA’s suggestion? Change your 2012/2013 FSA limits – and all relevant plan documents – during this year’s renewal season.
Communication is Key.
In addition to amending your plan documents, informing your employees – especially those who rely on FSAs to offset the costs associated with chronic illnesses as well as dental and vision care – will help you seamlessly implement the new $2,500 limit.
Should you need help with amending your plan documents or employee complications, GSA can help. Just contact us at 1-800-250-2741 or via email at Solutions@gsanational.com.
Please note that the information contained on this website is provided as an
informational service to our clients and does not constitute legal advice.