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Recap of New Health Flexible Spending Account Rules

Starting in 2013, health FSAs cap at $2,500.

Recap of New Health Flexible Spending Account Rules

A health flexible spending arrangement ("FSA") allows employees to pay for certain health care expenses on a tax-preferred basis. It is a benefit an employer may offer as part of a cafeteria plan, and it is usually funded through an employee's salary reduction contributions. These contributions reduce the amount of wages subject to income and employment taxes. Employees can use the FSA funds to pay for certain health care expenses as they are incurred.

The Affordable Care Act (the healthcare reform legislation enacted by Congress in 2010) capped employee salary reduction contributions to health FSAs to $2,500 per year for plan years beginning after 2012. The $2,500 limit will be indexed for inflation for plan years beginning after 2013. As before, an employer may establish its own plan limitation, but an employer's plan limit may not exceed the statutory limit.

The new limit does not affect ...

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Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

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Posted:
  • July 22, 2013

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