Recent IRS guidance provides information on the new rules under Health Care Reform that limit the amount of salary reduction contributions to a health flexible spending arrangement (FSA) to $2,500 annually (adjusted for inflation) beginning in 2013.
The new guidance addresses a number of issues related to the limit on contributions, including:
- The $2,500 limit applies on a plan year basis and is effective for plan years beginning after December 31, 2012;
- Plans may adopt the required amendments to reflect the limit at any time through the end of calendar year 2014;
- Relief is provided for certain salary reduction contributions exceeding the $2,500 limit that are due to a reasonable mistake and not willful neglect and that are corrected by the employer; and
- Comments are requested on whether the current “use-or-lose” rules for health FSAs should be modified in light of the new limit.
Limit Applies to Health FSAs Only
The guidance makes clear that the $2,500 limit does not apply to contributions or amounts available for reimbursement under other types of FSAs, health savings accounts (HSAs), or health reimbursement arrangements (HRAs), or to salary reduction contributions to cafeteria plans used to pay an employee’s share of health coverage premiums.