Health Flexible Spending Accounts (Health FSAs) are subject to maximum contribution limits under the Affordable Care Act (ACA), but certain situations can make it tricky to determine how much can be contributed to a Health FSA. Those situations are explained below.
For plan years starting in 2023, an employee may contribute up to $3,050 to a Health FSA through pre-tax salary reductions. Employers may optionally set lower contribution limits, but \$3,050 is the maximum pre-tax salary reduction contribution limit allowed under the ACA. This number is adjusted for inflation each year.
Employers may contribute above and beyond the $3,050 pre-tax salary reduction contribution limit. Employers may contribute either the greater of 1) up to $500, or 2) up to a dollar-for-dollar match of an employee’s pre-tax salary reduction contribution. That means an employee could have up to \$6,100 in their Health FSA from their own contributions and the employer’s matching contribution.
At the option of the employer, unused Health FSA funds may be carried over into the following plan year. Up to $570 may be carried over from the 2022 plan year into the 2023 plan year ($610 for the 2023 plan year into the 2024 plan year). Carryover funds do not count against the salary reduction contribution limits or the employer contribution limits. That means an employee could have up to $6,670 available to them in the 2023 plan year from their own contributions, the employer’s matching contributions, and carryover of unused funds from the prior plan year.
Salary reduction contribution limits must be pro-rated for short plan years. For example, a 6-month plan year that starts in 2023 would only allow pre-tax salary reduction contributions of up to $1,525.
If an employee works for multiple employers and is eligible for more than one Health FSA, they can make pre-tax salary reduction contributions of up to $3,050 into each Health FSA. This assumes the employers are not part of the same controlled or affiliated group. If the employers are part of the same controlled or affiliated group, then the most that can be contributed is a combined $3,050 amongst the various Health FSAs available to the employee.
If both spouses are eligible for a Health FSA, both can separately make pre-tax salary reduction contributions of up to $3,050 into their respective Health FSA. This is true even if both spouses work for the same employer.
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