Health FSA Contribution Limit
Flexible spending accounts (FSAs) are typically offered through an employer-sponsored benefit plan and allow you to manage healthcare expenses. They allow individuals to contribute pre-tax dollars to an account, which can then be used to pay for qualified medical expenses throughout the year.
Section 125 of the Internal Revenue Code sets a maximum dollar limit for employees’ salary reduction contributions to health FSAs. Initially, this limit was set at $2,500 for plan years beginning on or after January 1, 2013, and has since been adjusted annually to account for inflation. As of January 1, 2023, the health FSA contribution limit stands at $3,050.
It’s important to note that this limit specifically applies to employees’ pre-tax contributions to a health FSA. Non-elective employer contributions, such as matching contributions or flex credits, generally do not count towards the health FSA contribution limit. Furthermore, this limit does not encompass employees’ pre-tax contributions for other benefits, such as health insurance coverage.
While the Code establishes the maximum limit, employers have the flexibility to impose their own limits on employee contributions to health FSAs. However, it is crucial for employers to ensure that their imposed limit does not exceed the maximum limit set by Code Section 125 for the relevant plan year. Employers with health FSAs should verify that their contribution limit is clearly outlined in the plan’s documents and effectively communicated to employees during the enrollment period.
HSA and HDHP Contribution Limits
New limits for health savings accounts (HSAs) and high deductible health plans (HDHPs) have been announced by the IRS.
HSAs have gained popularity as valuable tools for individuals and families to save and invest funds specifically for healthcare expenses. These accounts offer triple tax advantages: contributions are tax-deductible, earnings grow tax-free, and withdrawals for qualified medical expenses are tax-free. You must be covered under a high-deductible health plan to qualify for HSA enrollment.
For 2024, the contribution limits for HSAs have been increased to allow individuals and families to set aside more money for healthcare costs. The new limits are as follows:
- Individual Coverage: The annual contribution limit for individuals with self-only coverage has been raised to $4,000.
- Family Coverage: For those with family coverage under an HSA-eligible HDHP, the contribution limit has been increased to $8,000.
By raising the limits, individuals and families can save more for future healthcare expenses and benefit from HSA-associated tax advantages.
HDHPs are health insurance plans that have lower monthly premiums but higher deductibles compared to traditional health insurance plans. They are often paired with HSAs, allowing individuals to save for future healthcare costs while benefiting from lower premiums.
The minimum deductible and maximum out-of-pocket limits for HDHPs have increased in 2024, ensuring eligibility for HSAs. The new limits are as follows:
- Minimum Deductible:
- Self-only coverage: $1,400
- Family coverage: $2,800
- Maximum Out-of-Pocket:
- Self-only coverage: $7,050
- Family coverage: $14,100
These limits reflect the increasing costs of healthcare and look to balance between affordable coverage and protection against catastrophic expenses. If you have additional questions about the updated FSA, HSA and HDHP contribution limit updates or any other benefit questions, contact us to speak to a consultant. You can also follow us on Twitter or LinkedIn or here on the FBS Blog for more employee health and wellness trends.