The Affordable Care Act (ACA) put contribution limits on health flexible spending accounts (FSAs). Under the ACA, employees’ salary reduction contributions to health FSAs are subject to a maximum dollar limit offered under cafeteria plans.
Effective for 2016 plan years, employers with health FSAs must limit employees’ salary reduction contributions to a maximum of $2,550 per IRS Revenue Procedure 2015-53 – this is unchanged from the 2015 dollar limit.
It’s important to note that an employer may continue to impose its own dollar limit on employees’ salary reduction contributions to health FSAs, as long as the employer’s limit does not exceed the ACA’s maximum limit in effect for that plan year.
The health FSA limit applies on an employee-by-employee basis – meaning each employee may elect up to the $2,550 limit or just to the employer imposed maximum if that limit is less than $2,550 for 2016. This is regardless of whether the employee also has family members who benefit from the funds in that FSA. However, each family member who is eligible to participate in his or her own health FSA will have a separate limit.
Note that if an individual is eligible for health FSAs through two or more unrelated employers, he or she can make salary reductions of up to $2,550 (or up to the employer maximum if less) under each employer’s health FSA plan.
Don’t forget, you don’t have a plan unless you have a compliant plan document and the IRS isn’t afraid to access fines, penalties, and/or back taxes if you are not compliant.