Health FSA Limit Increase for 2017

The Affordable Care Act (ACA) imposes a dollar limit on employees’ salary reduction contributions to health flexible spending accounts (FSAs) offered under cafeteria plans. This dollar limit is indexed for cost-of-living adjustments and may be increased each year.

On Oct. 25, 2016, the Internal Revenue Service (IRS) released Revenue Procedure 2016-55 (Rev. Proc. 16-55). Rev. Proc. 16-55 increased the FSA dollar limit on employee salary reduction contributions to $2,600 for taxable years beginning in 2017. It also includes annual inflation numbers for 2017 for a number of other tax provisions.

Employers Actions

Employers should ensure that their health FSA will not allow employees to make pre-tax contributions in excess of $2,600 for 2017, and they should communicate the 2017 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 2016 maximum limit for its 2017 plan year.

Plan Amendments

Plan documents that specify the health FSA dollar limit must be amended if the higher limit will be used in 2017.

DISCLOSURE

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The information provided is for informational purposes only and does not constitute legal advice. The information above contains only a summary of the applicable legal provisions and does not purport to cover every aspect of any particular law, regulation or requirement. Depending on the specific facts of any situation, there may be additional or different requirements. This is to be used only as a guide and not as a definitive description of your compliance obligations.