Health Flexible Spending Arrangements (FSAs)

May 30, 2012

The IRS this afternoon issued guidance on several FSA related matters— 1.   The Obamacare provision which limits employee contributions to FSAs to $2,500 a year will not apply to plan years which begin before 2013, 2.   The $2,500 limitation is applicable to the FSA’s plan year rather than the employee’s taxable year, 3.   A plan sponsor will have until the end of calendar year 2014 to amend its FSA to incorporate the $2,500 limit, 4.   If a plan provides for a grace period, unused contributions from the prior year will not count toward the $2,500 limitation for the subsequent year, and 5.   IRS will (absent the FSA being under an IRS audit) provide relief for contributions that exceed the $2,500 limitation as long as the contributions are not due to willful neglect and are corrected by the plan sponsor. Finally, the IRS is requesting comments on whether to modify the “use-or-lose” rule for FSAs, and such comments are due by August 17, 2012. Please contact Jan Marsh 678.336.7135 if you want to discuss the new guidance. (Click here to view new guidance)

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