2019 Contribution Limits to Employee Benefit Programs

With healthcare costs continuing to grow, employee benefit programs are becoming a must-have for your employees to pay for eligible expenses with tax-free dollars.

Below is a summary of the 2019 contribution limits for these various employee benefit programs: 

Health Flexible Spending Account (Health FSA)

• Employees may contribute up to $2,700 to a Health FSA.
• In addition, employers may contribute up to $500 or a dollar-for-dollar match of the employee’s contribution, whichever is greater.
• Carryover balances (of up to $500) do not count toward the contribution limits.

Dependent Care Flexible Spending Account (DC FSA)

• Employees may contribute up to $5,000 to a DC FSA if they file their taxes as a single or married jointly. 
• Employees may contribute up to $2,500 to a DC FSA if they are married but file their taxes separately. 
• Employers may contribute to a DC FSA, but employer contributions count toward the limits. 
• DC FSA limits do not adjust for inflation.

Commuter Plans

• The monthly contribution limit for mass transportation is $265.
• The monthly contribution limit for qualified parking is $265.
• Employees can participate in both a mass transportation and qualified parking plan.
• Employers may contribute to a Commuter Plan, but employer contributions count toward the limits. 

Qualified Small Employer Health Reimbursement Arrangement (QSEHRA)

• The contribution limit is $5,150 for single coverage and $10,450 for family coverage.
• Only employers can contribute to a QSEHRA. Employee contributions are prohibited.

Health Reimbursement Arrangement (HRA) – other than a QSEHRA

• Employers establish the contribution limits.
• Only employers can contribute to the HRA. Employee contributions are prohibited.
• These type of HRAs include those that are integrated with a group health plan, those that only reimburse excepted benefits (e.g. dental/vision), and those that only reimburse former employees (e.g. retirees). 

Health Savings Account (HSA)

• Employees may contribute $3,500 if they have single coverage and $7,000 if they have family coverage.
• A catch-up contribution of $1,000 is available for people age 55 or older.
• Employers may contribute to the HSA, but employer contributions count toward the limits.
• Employees must be enrolled in a qualified high deductible health plan (HDHP) and meet other eligibility criteria to participate in an HSA. 

Wait! What?

The Internal Revenue Service (IRS) has a term they use called “constructive receipt.” In simple terms, constructive receipt means a person has control over money that is not yet in their possession. As an example, think about an employee who receives their final paycheck for the year on December 31, 2018, but the employee doesn’t cash the check until January 10, 2019. The IRS will consider the employee to have been in constructive receipt of this money in 2018, and subject to income taxes for 2018, even though the employee didn’t physically have the money until 2019.

Constructive receipt also needs to be taken into consideration when an employer provides a cash payment to employees who waive health insurance coverage. Employees who are eligible for the health insurance plan have control over whether they receive a cash payment. That control exists because they have the option to waive coverage under the health insurance plan in return for a cash payment. This is a form of constructive receipt. 

This means an employee may actually elect health insurance coverage and have to pay taxes on the money they could’ve received had they waived coverage……unless the employer takes the appropriate steps and makes the cash payment available through a Cafeteria Plan. 

First, let’s illustrate this the wrong way and assume an employer offers employees $1,000 in taxable compensation if they waive health insurance coverage. Employees who waive coverage will receive an additional $1,000 in compensation. This compensation should be treated like a cash bonus, subject to income and employment taxes. Employees who enroll in coverage will be considered to have constructively received $1,000, even though they didn’t receive any additional compensation. Employers will need to apply the appropriate wage-withholding and employment taxes to money the employee never received due to constructive receipt.  

Yikes!

But there is some good news. As long as an employer has a Cafeteria Plan in place which allows for the choice between health insurance and a cash payment, then constructive receipt will not apply to those employees who enroll in health insurance coverage. In other words, the employees who elect health insurance coverage can do so tax-free. The bottom line is to make sure the Cafeteria Plan document addresses this information so adverse tax consequences can be avoided.