The IRS announced on Oct. 18 an increase in the Health FSA contribution cap, the limit employees are allowed to contribute into their savings account. The annual contribution limit rises to $3,050, up from $2,850 in 2022. The increase is double the $100 rise from 2021 to 2022. The increase is of great assistance in light of rapid inflation.
If the employer’s plan permits the carryover of unused health FSA amounts, the maximum carryover amount rises to $610, up from $570.
Tax-exclusion limits for employer-sponsored commuting benefits and adoption assistance programs are also rising for 2023 due to cost-of-living adjustments (COLAs), the IRS announced in Revenue Procedure 2022-38 and summarized in a related press release.
The IRS separately announced 2023 contribution limit COLAs for 401(k)s and similar defined contribution plans, and annual limit adjustments for defined benefit pension plans.
Health FSA Contribution Cap
The chart below shows the adjustment in health FSA contribution limits for 2023. Employers may set lower limits for their workers.
|Health Flexible Spending Accounts||2022||2023||Difference|
|Maximum contribution amount||$2,850||$3,050||+$200|
|Maximum carryover amount||$570||$610||+$40|
The limit also applies to limited-purpose FSAs that are restricted to dental and vision care services, which can be used in tandem with health savings accounts (HSAs). Employees do not need to take action, but employers need to amend their plan documents to reflect these changes.
If employers offer contributions to employee health care FSA, this amount is in addition to the amount that employees can elect. Employees can elect up to the IRS limit and still receive the employer contribution. An employer may contribute up to $500 regardless if employees contribute to a health FSA. Starting at $501, employers may only contribute as a dollar-for-dollar match with the amount employees contribute.
Therefore, the maximum health FSA amount available for plans beginning January 1, 2023 will be limited to $3,050 (the max employee contribution) + $500 (the max employer contribution, if offered), for a total of $3,550 combined.