FSA Limit & Plan Year Clarification

The IRS has just released Notice 2012-40 for Health Care Flexible Spending Accounts (FSAs) regarding the $2500 contribution limit that goes into effect for 2013 and deadlines for compliance. This guidance provides transition relief for FSA plans that run on a non-calendar year basis.

FSA Plan Year Clarified

• The $2,500 limit will not affect any plans beginning prior to January 1, 2013.    
• Fiscal plan years will not be impacted until the first plan year beginning on or after January 1, 2013.   
• Non-calendar plan years will have until the end of the 2014 calendar year to amend their plans to comply within the limit.
• Short plan years must prorate the $2,500 limit based on the number of months in the short plan year.    

$2,500 Contribution Limit Items of Note

• Applies to salary reductions (including cashable credits).
• Applies separately for each unrelated employer that an individual may be working for during the year.
• Does not apply to non-elective contributions that cannot be cashed out or received in the form of taxable benefits.
• Unused amounts carried over during a grace period are not counted toward the $2,500 limit.