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Broker Quiz: Flexible Spending Accounts

August 17, 2012

The correct answer is:
B. $2,500 per plan year

Beginning Jan. 1, 2013, employee contributions to their health Flexible Spending Accounts (FSA) will be limited to:

A. $2,000 per plan year
B. $2,500 per plan year
C. $2,750 per plan year
D. $3,000 per plan year

Beginning Jan. 1, 2013, employee contributions to health Flexible Spending Accounts (FSA) will be limited to $2,500 per plan year, with future increases to allow for inflation.

The new requirement applies to all FSA plans whose taxable years begin after Dec. 31, 2012 — even plans grandfathered under other provisions of health care reform.  

The U.S. Department of the Treasury issued Notice 2012-40 on May 30, 2012. The Notice provides additional guidance on the $2,500 limit imposed on salary reduction contributions to health FSAs effective Jan. 1, 2013.

The Notice 2012-40 specifically addresses questions regarding implementation of the contribution limit, particularly with respect to cafeteria plans with a non-calendar plan year. The guidance provides that: 

  • The $2,500 limit does not apply for plan years that begin before 2013. For example, a cafeteria plan with a July 1 plan year does not have to apply the limit until the plan year beginning on July 1, 2013;
  • The term “taxable year” refers to the plan year of the cafeteria plan;
  • Plans may adopt the required amendments to reflect the $2,500 limit at any time through the end of calendar year 2014;
  • If a plan has adopted a grace period of up to two-and-a-half months, unused salary reduction contributions to the health FSA that are carried over into the grace period will not count against the $2,500 limit for the subsequent plan year;
  • If a plan is timely amended to reflect the new $2,500 limit, relief is available for certain excess salary reduction contributions that result from a reasonable mistake and not willful neglect and that are corrected by the employer; and
  • The contribution limit applies only to employee salary reduction contributions to health FSAs.  

The limit does not apply to:

  • Non-elective employer contributions;
  • Employee salary reduction or other contributions to other types of FSAs;
  • Health savings accounts;
  • Health reimbursement arrangements; and 
  • Payment of an employee’s share of his or her health care coverage premiums.

 Employers should be made aware that:

  • Non-calendar year renewals do not need to initiate the change to the contribution limit prior to Jan. 1, 2013
  • Non-elective employer contributions do not apply to the $2,500 limit
  • Plan amendments do not have to be updated until the end of 2014 

You can learn about other changes to health spending accounts under the Patient Protection and Affordable Care Act at the United for Reform Resource Center. 

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