Industry News

June 06, 2012 10:25:43 am

IRS Establishes Contribution Limits for Health FSAs

The Internal Revenue Service (IRS) has released a notice regarding the annual limit for employee salary reduction contributions to health flexible spending arrangements (health FSAs).  Notice 2012-40 establishes a $2,500 limit for contributions in accordance with the Patient Protection and Affordable Care Act of 2010 and the Health Care and Education Reconciliation Act of 2010.  Under prior law, health FSAs statutory provisions did not contain any contribution limits.
In addition to establishing the annual limit, the notice includes detailed guidance for employers.  
The notice also includes a request for comments from employers on the “use-or-lose” rules for health FSAs.  The new guidance provides for a “grace period” of up to two months and 15 days from the contribution date for salary contributions to be used for a plan year.  The IRS is interested in suggestions for additional flexibility besides the grace period, and how those modifications would interact with the annual contribution limit.  The IRS is accepting comments until August 17, 2012.  
For a summary of the important features of the notice, please see the Journal of Accountancy.   To see the full guidance, including the instructions for submitting comments, please click here.  To learn more about REDW’s benefits consulting, please contact Lisa Wilcox, Carol Mayo Cochran or Dennis Davis.  

Tags: BenefitsHealth FSAs


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