IRS ISSUES GUIDANCE ON $2,500 FSA LIMIT FOR 2013

IRS Issues Guidance on $2,500 FSA Limit for 2013

The U.S. Internal Revenue Service issued Notice 2012-40, with guidance on the $2,500 limit on pretax employee contributions to health care flexible spending accounts (FSAs) under the Patient Protection and Affordable Care Act (PPACA). The reform law limit on the amount that employees can set aside in FSAs is scheduled to take effect in 2013.

If you are beginning an FSA for this year or need to adjust to comply, do you have all the information that you need to do this?

·         How do you process short plan years?

·         What does this mean for Health Reimbursement Arrangements, Health Savings Accounts or Dependent Care FSAs?

·         Does this change what can be funded by employers?

·         How do you correct an error?

·         What do you do with married couples that work for you?

·         What’s going on with the use-or-lose rule?

Among the points clarified in the notice:

• The $2,500 limit is effective for plan years starting January 1, and not the taxpayer’s tax year. Employers with fiscal year health care FSAs may keep higher reimbursement limits in effect through the end of their 2012-2013 plan year.
• Employers may adopt retroactive amendments to impose the $2,500 limit before Dec. 31, 2014.
• The $2,500 limit applies only to salary reduction contributions under a health care FSA and does  not limit the amount permitted for reimbursement under an FSA for dependent care assistance or adoption care assistance. Nor does it apply to salary reduction or any other contributions to a health savings account (HSA) or to amounts made available by an employer under a health reimbursement arrangement (HRA).
• The $2,500 limit also does not apply to employer nonelective contributions — sometimes called flex credits — nor to salary reduction contributions to a cafeteria plan that are used to pay an employee’s share of health coverage premiums (or the corresponding employee share under a self-insured employer-sponsored health plan) — sometimes referred to as “premium conversion” salary reduction contributions.
• Relief is provided for certain salary reduction contributions exceeding the $2,500 limit that result from a reasonable mistake and not willful neglect and that are corrected by the employer.

For more answers to your questions visit www.irs.gov and search Notice 2012-40.