Benefits Blog

IRS Increases FSA Limit to $2,600 in 2017

Posted by Jim Hayes on Tuesday, October 25, 2016 @ 09:26 PM


The IRS Increases Medical FSA Limit to $2,600:

The IRS announced today (10/25/2016) that the Medical FSA and Limited Purpose FSA cap will increase to $2,600 (an increase $50) for plan years beginning on or after January 1st, 2017. If your plan document was created by 24HourFlex the language will reference the maximum amount permitted, in which case no change is required.

Keep reading below for commonly asked questions related to this update.

 

Does This Change Require and Amendment to our Plan Document and Summary Plan Description (SPD)?

Usually, these documents do not need to be amended because the language in your plan document or Summary Plan Description does not specifically reference the $2,500 limit, or, it describes the limit as the "maximum amount permitted under code section 125(i)". Other descriptive marketing material created by you may reference a $2,550 limit and should be updated.

Employees have already enrolled for 2017 with the $2,550 limit, can we automatically change those elections to $2,600?

No, the Medical FSA election that your employees made is a specific election and can not be automatically increased. Most calendar-year plans are most likely still within the open-enrollment period. You could choose to notify your employees that the Medical FSA cap has increased to $2,600 and allow the participants to modify their 2017 election.

What Other Areas Could This New $2,600 Cap Impact?

If your payroll or enrollment system has a cap on the Medical FSA of $2,550 you would need to work with those vendors to update the cap to $2,600. You should also verify that information on local intranets, company websites, or other collateral created by you is updated.

Did the Dependent Care FSA Limit Change?

No, the Dependent Care FSA limit did not change. It is stil $5,000.



 

Tags: IRS, FSA

The New Healthcare Cadillac Tax - Why it Matters to YOU

Posted by Nathan Carlson on Thursday, December 03, 2015 @ 09:05 AM

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Your employer may soon have to cut back on the healthcare benefits provided to you to avoid an onerous 40% federal tax called the “Cadillac Tax”.  Starting in 2018, companies that are too generous to their employees by providing attractive healthcare insurance will be hit with a huge tax.  The Kaiser Family Foundation, a respected, nonprofit research group, estimates that one in four companies will be affected by this tax, and to avoid it, will have to cut back on their healthcare benefits.

To add insult to injury, the law says that starting in 2018, any pretax amount YOU put into your own Medical Flexible Spending Account or Health Savings Account has to be counted as employer-provided healthcare benefits and could trigger this 40% Cadillac tax.  Yes, you read that correctly.  Such contributions count as EMPLOYER contributions when calculating this tax, which means that starting in 2018 when you make these pretax payroll contributions to your own Medical Flexible Spending Account or your own Health Savings Account (HSA), your employer may have to cut back even further on the healthcare benefits provided to you if this onerous 40% tax is to be avoided.

As our Congressmen and Senators are becoming aware of the unfair nature of this tax, a bipartisan coalition is forming to change the law.  This provision of Healthcare reform is so bad that even Labor Unions and Republicans have joined together to amend this portion of the Act.  Politics makes for strange bedfellows at times.

Isn’t 2018 a long way off?  Why do I care now? 

In anticipation of this upcoming “Cadillac” tax, companies are already cutting back on their healthcare benefit packages by only offering healthcare insurance with larger deductibles, knowing that big changes to benefits packages cannot be done in just one year.

What Can You Do?

24HourFlex has joined forces with ECFC, the Employer’s Council for Flexible Compensation, to change the law.  Ideally, we would like the “Cadillac” Tax provisions repealed entirely.  At this time that may not be realistic.  However, at a minimum we want the law changed so that YOUR pretax contributions to YOUR Medical Flexible Spending Account or YOUR Health Savings Account are NOT counted as EMPLOYER contributions when calculating this tax. 

After all, this money is yours and not your employer’s.

Join us in getting this law changed.  Go to www.mymoneymyhealth.org

Tags: IRS, Health Care

2016 FSA Limits

Posted by Jim Hayes on Tuesday, November 03, 2015 @ 03:23 PM

The IRS has announced the annual contribution limits for 2016 (IRS News Release IR-2015-119, Oct. 21, 2015).  Most benefit limits will remain unchanged for plan years starting on or after January 1st, 2016. Qualified parking is the only benefit with a change, increasing $5 per month from $250 to $255. 

The following limits are detailed in IRS Revenue Procedure 2015-53:

  • Qualified Parking: $255/month – increased from $250/month in 2015
  • Qualified Transportation: $130/month
  • Medical Flexible Spending: $2,550
  • Limited Purpose Flexible Spending: $2,550
  • Dependent Care Flexible Spending: $5,000

Also, if your plan offers a Health Savings Account (HSA), the annual contribution limits for 2016 are detailed in IRS Revenue Procedure 2015-30 as follows:

  • Individual Coverage: $3,350
  • Family Coverage: $6,750 – increased from $6,650 in 2015
  • Catch-up for age 55+: $1,000

Tags: IRS

IRS Clarifies New Carry-Over Provision’s Impact on HSAs

Posted by Nathan Carlson on Wednesday, April 09, 2014 @ 04:43 PM

Are you or your client considering adding the new Carry-Over provision to your Flex Plan?  The IRS recently issued important guidance on how this Carry-Over provision impacts HSAs.  If not set up correctly, the Carry-Over provision will invalidate many HSA contributions, resulting in a loss of deduction and penalties.  My Bulletin describes how to create Fail-Safe language that guards against these issues.

This Information Bulletin is a must-read for:

  • any employer that has adopted (or is contemplating adopting) the new IRS Carry-Over provision and also offers an HSA-qualified HDHP,

  • vendors that offer HDHPs, and
  • industry professionals that provide related consulting or insurance services.

Click Here For Bulletin

Tags: IRS, Carry-Over, Cafeteria Plans

IRS Announces $500 Carry‐Over Provision for Health FSA Plans!

Posted by Nathan Carlson on Friday, November 01, 2013 @ 03:03 PM

IRS Announces $500 Carry‐Over Provision for Health FSA Plans!

By Nathan Carlson President, 24HourFlex.com Nathan@24hourflex.com

On October 31, 2013 the IRS announced that health FSAs can allow up to $500 of unused amounts at the end of the plan year to roll forward to the following plan year(s). This new carry‐over option is an alternative to the current IRS Grace period and does not affect the maximum health FSA cap of $2,500. To take advantage of this new carry‐over provision, the company’s Cafeteria Plan Document must be amended in a timely manner.

Example 1:

John chooses to contribute $1,000 to his company’s Medical FSA for 2014, a Cafeteria Plan that does not have the IRS Grace period and has elected to adopt the new IRS carry­over provisions. This Cafeteria Plan also has a 90­day run­ out period that allows participants until 3/31 of the following year to submit for reimbursement expenses for services rendered during the plan year. As of 12/31/2014, John still has $800 in his health FSA. Prior to 3/31/2015, John submits $300 of 2014 medical expenses for reimbursement, leaving $500 still unused as of 4/1/2015. This unused amount of $500 can roll forward and be spent on expenses incurred at any time during 2015 in addition to John’s 2015 health FSA funds. Assuming that John elected to enroll in 2015 in the health FSA for $1,000, John would actually have $1,500 to spend in 2015.

Which Cafeteria Plans can adopt this new Carry‐over provision?

Any Cafeteria Plan with a health FSA can adopt a Carry‐over provision if the plan does not contain the IRS Grace period. The plan cannot have both the IRS Grace period and a Carry‐over provision.i

When can the new Carry‐over provision be adopted?

Generally, the new Carry‐over provision must be adopted (via an amendment to the Cafeteria Plan Document), and any Grace Period language removed, by the end of

the plan year for which they are effective. However, for plan years beginning in 2013, the Carry over provisions must be adopted by the end of the 2014 plan year. In this case, the Grace Period language must still be removed by the end of the 2013 plan year.

What is the difference between the IRS Grace period and the new IRS Carry‐ over provision?

Essentially, the existing IRS Grace period allows any unused amount to be carried forward into the next year and spent within 21⁄2 months. However, after the Grace period and the run‐out period have expired, any unused funds are forfeited.

In contrast, health FSA plans containing the new IRS Carry‐over provision can allow up to $500 to be carried forward indefinitely until it is spent regardless of whether or not the employee continues to participate in the company’s health FSA.

IRS $500 Carry Over Provision Chart

 

It is important to note that funds rolled forward via the IRS Grace period or the IRS Carry‐over provision do not reduce or affect the $2,500 maximum cap on the health FSA.

Example 2:

Sue participates in her company’s health FSA that has the 21⁄2 IRS Grace period. For 2014, her annual health FSA election is $2,500. As of 12/31/2014 Sue has not incurred any medical expenses. Sue re­enrolls in the health FSA for $2,500 for 2015. In February of 2015 Sue incurs $5,000 of eligible medical expenses, $2,500 is reimbursed from her unused 2014 funds and $2,500 from her 2015 election.

Example 3:

Assume the same facts as in Example 2 except that Sue’s company’s health FSA has the IRS Carry­over provision rather than the IRS Grace period. Since only

$500 of Sue’s unused 2014 funds can roll forward to 2015, Sue will forfeit $2,000.

How does the presence of health FSA Carry‐over funds affect one’s HSA eligibility?

A full‐flex, health FSA is “impermissible coverage” when determining one’s HSA eligibility. In other words, one cannot contribute to an HSA if benefits are available under a health FSA. Therefore, an employee must exhaust his full‐flex, health FSA benefits if he intends to fund an HSA.

Example 4:

Joe participates in his company’s calendar­year full­flex, health FSA that contains the IRS Grace period. On 12/31/2013 Joe still has $100 in his health FSA account. Joe does not enroll in the health FSA for 2014 and spends his leftover 2013 funds in January of 2014. Per IRS guidance, Joe is ineligible to make a HSA contribution until April 1, 2014, the first day of the month following the IRS 21⁄2 month grace period.

Example 5:

Jim participates in his company’s full­flex, health FSA that contains the IRS Carry­over provision. On 12/31/2013, Jim still has $100 in his health FSA account. Jim does not enroll in his company’s health FSA in 2014. So long as Jim has any money in his full­flex, health FSA account, he has “impermissible coverage” and is not allowed to make an HSA contribution. Jim will be able to make a HSA contribution on the first day of the month following the depletion of his health FSA, assuming that Jim is otherwise eligible to make an HSA contribution.

According to our legal counsel, this issue perhaps can be resolved if the Cafeteria Plan Document contains language that automatically transforms a full‐flex, health FSA into a limited‐purpose, health FSA upon the employee’s enrollment in a High Deductible Health Plan.

Will terminated employees have a COBRA election with respect to any unused health FSA funds that exist by virtue of a Carry‐over provision?

If the employer is otherwise subject to COBRA, a COBRA election must be granted for these unused funds.

Does the new Carry‐over provision apply to Dependent Care FSAs?

No, the new Carry‐over provision only applies to Health FSAs. On the other hand, the IRS 21⁄2 month Grace period can apply to health and/or dependent care FSAs.

Will 24HourFlex be administering health FSA plans containing the new Carry‐ over option?

Yes, the 24HourFlex system is presently capable of administering this new feature.

What is the process for adding the new Carry‐over provision?

  1. Decide the effective date for adding the Carry‐over provision.
  2. Notify your Client Relationship Manager at 24HourFlex of your decision to
  3. add the Carry‐over provision and the effective date of that decision—the plan
  4. year beginning in 2013 or 2014.
  5. If your Cafeteria Plan presently contains the 21⁄2 month IRS Grace Period,
  6. instruct 24HourFlex to remove this provision.
  7. Notify your employees in writing of the changes to the Cafeteria Plan.

(24HourFlex is developing a communication tool you can use).

 

To learn more and discuss with an expert, click here.

Discuss with an FSA or HSA Expert

i The IRS Grace period allows plan participants 21⁄2 months after the end of the plan year to incur expenses. For example, a calendar‐year plan with the IRS Grace period would allow participants to incur health and/or daycare expenses up until 3/15 of the following year. The IRS Grace period differs from a run‐out period. A run‐out period allows plan participants an amount of time after the end of the plan year (i.e., 90 days) to submit expenses; however, these expenses must have been incurred during the plan year. Often Cafeteria plans contain both a Grace period of 21⁄2 months and a run‐out period of 90 days after the end of the plan year. Such a structure gives plan participants 15 days after the end of the 21⁄2 month Grace period to submit expenses for reimbursement, providing these expenses were incurred during the 141⁄2 month period (the normal 12 month plan year plus the 21⁄2 month IRS Grace period). 

Tags: IRS, Health Insurance, DOMA FSA HSA