IRS Increases 2018 FSA Contribution Limits
The Affordable Care Act (ACA) imposes a dollar limit on employees’ salary reduction contributions to health flexible spending accounts (FSAs). This dollar limit is indexed for cost-of-living adjustments and may be increased each year.
On Oct. 19, 2017, the IRS increased the FSA dollar limit on employee salary reduction contributions to $2,650 for taxable years beginning in 2018. It also includes annual inflation numbers for 2018 for a number of other tax provisions.
You can download a quick reference sheet for the 2018 FSA and HSA contribution limits at the end of this post.
Action Steps for Employers
Employers should ensure that their health FSA will not allow employees to make pre-tax contributions in excess of $2,650 for 2018, and they should communicate the 2018 limit to their employees as part of the open enrollment process.
An employer may continue to impose its own health FSA limit, as long as it does not exceed the ACA’s maximum limit for the plan year. This means that an employer may continue to use the 2017 maximum limit for its 2018 plan year.
Since the 2017 plan year is coming to close, employers should also issue regular reminders to their employees about the “Use it, Or Lose it” function of the FSA. Some plans may allow for either $500 of rollover or a short grace period, but not all plans have these options. Employees should be advised to check their balances and determine if they’d like to make any last purchases with their FSA before the end of the year. Below are some tips on what employees can purchase with their remaining FSA dollars.