IRS Releases New Health Care FSA and Commuter Benefit Account Limits and Updates Carryover Maximum for 2023
What you need to know:
- For Flores Health Care FSA clients currently allowing the IRS maximum employee contribution limit of $2,850, Flores will automatically adjust your Health Care FSA plan to allow for employee contributions up to the IRS maximum of $3,050 for your 2023 plan year. Flores plan documents will be updated automatically to reflect the change. No changes will be made to your plan maximum if you indicated you do not want an automatic adjustment on your 2023 re-enrollment checklist.
- For plans permitting a Health Care FSA carryover, the maximum Health Care FSA carryover for plan years beginning in 2023 is $610 (or 20% of the FSA annual max), which is an increase of $40 from the carryover limit of $570 for plan years beginning in 2022.
- Monthly Commuter Benefit limits for parking and for transit will rise by $20 from $280 to $300 for tax year 2023.
Charlotte, NC – October 21, 2022 – On October 18th the IRS announced the Health Care FSA and qualified transportation contribution limits for plan years beginning on or after January 1, 2023 in Revenue Procedure 22-38. This alert provides an overview of these limits, information regarding the application of 2022 Health Care FSA carryover limit, and a reminder of 2023 plan maximums and limits previously announced by the IRS.
2023 Health Care FSA and Transportation Contribution Limits
The 2023 Health Care FSA employee contribution limit is $3,050 (up $200 from the 2022 FSA annual limit). The maximum Health Care FSA carryover is indexed each year to 20% of the annual IRS maximum employee contribution limit. Therefore, for plan years beginning in 2023, the carryover maximum is $610 (or 20% of the 2023 FSA annual maximum of $3,050), which is an increase of $40 from the 2022 carryover limit of $570. As set by the Internal Revenue Code, the Dependent Care FSA limits for 2023 remain $5,000 for married filing jointly or single and $2,500 for married filing separately. The 2023 transportation benefit contribution limit is $300 per month (up $20 from the 2022 limits).
For Flores Health Care FSA clients (including those clients migrating to the Flores platform for the 2023 plan year) who currently allow the IRS maximum employee contribution of $2,850, Flores will automatically adjust your Health Care FSA plan to allow for employee contributions up to the 2023 IRS maximum of $3,050 for your 2023 plan year. Flores plan documents will be updated automatically to reflect the change. No changes will be made to your Health Care FSA maximum if you indicated you do not want an automatic adjustment on your 2023 re-enrollment checklist.
Application of 2022 Health Care FSA Carryover Limits
Many employers opted to allow unlimited carryover for Health Care FSAs under the COVID-19 relief contained in the CAA. If adopted by an employer, the relief allowed unlimited Health Care FSA carryovers (1) from the FSA plan year ending in 2020 to the plan year ending in 2021 and/or (2) from the FSA plan year ending in 2021 to the plan year ending in 2022. As a reminder, the IRS FSA maximum carryover limits are back in place for the plan year ending in 2022 (and going forward). The maximum Health Care FSA carryover from the plan year beginning in 2022 to the plan year beginning in 2023 is $570. Employees with significant Health Care FSA balances will want to take care to use their FSA dollars so as not to forfeit unused balances in excess of $570 under the carryover rules.
Reminder Regarding 2023 Plan Maximums and Limits Previously Announced
The IRS also previously released the 2023 plan maximums and limits for health and welfare plans. Health Savings Account ("HSA") contribution maximums will increase in 2023 to $3,850 for self-only coverage and $7,750 for family coverage. In addition, the maximum out-of-pocket amounts will increase to $7,500 and $15,000 respectively and the minimum deductibles for HSA-qualifying health plans will increase to $1,500 and $3,000 respectively.
For employers subject to the ACA's Play-or-Pay mandate, the affordability safe harbor percentage applicable to 2023 plan years will be 9.12% (down from 9.61% in 2022). HHS out-of-pocket limits for ACA-compliant plans in 2023 will be $9,100 for self-only coverage and $18,200 for family coverage.