For 2023, employees will have the ability to add an extra $200 to their healthcare flexible spending accounts (FSAs) for the next benefit plan year by increasing the contribution cap from $2,850 to $3,050.
In addition, the IRS has also increased the unused amount of funds that an employee may rollover into the next benefit plan year without affecting their maximum contribution amount. If the employer’s plan permits the carryover of unused health FSA amounts, the maximum carryover amount rises to $610, up from $570.
Per current legislation, both dependent care and healthcare FSA plans can add a grace period of up to two and a half months that would allow the employee to incur new expenses using the prior-year’s unused funds. At the end of the grace period, all unspent funds must be forfeited. A healthcare FSA also can add the option of allowing for a rollover of up to 20% of the annual contribution limit. Plans can offer either a grace period or the carryover feature, but not both.
The dependent care FSA maximum annual contribution limit is not adjusted for inflation and will not change in 2023. It remains $5,000 per household for single taxpayers and married couples filing jointly, or $2,500 for married people filing separately. Married couples have a combined $5,000 limit.
Next Steps for Employers
As open enrollment may have begun for calendar year plans, employers may need review and update their open enrollment materials and communications to employees regarding the FSA. It may also be necessary for employers to review and update their employee handbook policy, if said policy specifies annual FSA limits.