On Thursday, November 15, 2018, the IRS released a statement that officially increased the annual contribution limit for Healthcare Flexible Spending Accounts (FSA) - both Medical FSAs and Limited Purpose FSAs - and the monthly contribution limits for Qualified Parking and Transportation Accounts for any plan years beginning in 2019. There was no change to the Dependent Care Flexible Spending Account.
On Monday, the IRS released Bulletin 2018-10, which included a revision to the 2018 Family contribution limit for Health Savings Accounts (HSA).
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.
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.
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.