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New FSA Maximum Has Consequences For "Plan Year" Groups

03/13/12

Permalink 04:59:14 pm, by MedBen5 Email , 306 words, 4717 views   English (US)
Categories: Health Plan Management

New FSA Maximum Has Consequences For "Plan Year" Groups

Beginning in 2013, the Affordable Care Act will change the maximum amount an employee may contribute to a Health FSA plan on a calendar year basis. But if your Health FSA plan happens to run on a plan year basis, it’s critical to be aware of this change and take appropriate measures this year, not next.

Effective January 1, 2013, Health FSA plans may not permit employee salary contributions to exceed $2,500 in a calendar year. For “plan year” groups, this affects your FSA elections in 2012, as the payroll deductions that occur in January 2013 can affect the 2013 Health FSA payroll deductions. Because the maximum deduction for calendar year 2013 cannot exceed $2,500, if a participant elects a greater amount in the 2012-2013 plan year, the amount withdrawn from their 2013 pay could potentially be greater than $2,500.

Example: ABC Company’s plan year runs July to June. Their Health FSA has a maximum contribution of $4,000.

John elects $4,000 in his Health FSA for the July 2012 to June 2013 plan year. He has 24 pay cycles per year (2 per month) and has a total of $333.32 per month deducted from his salary. In July 2013 he elects $2,500 in his Health FSA plan for the July 2013 to June 2014 plan year and has $208.33 per month deducted.

From January 2013 to June 2013, $1,999.92 was deducted on a pre-tax basis ($333.32 x 6 months), and from July 2013 to Dec 2013, $1,249.98 was deducted on a pre-tax basis ($208.33 x 6 months). The total of the two plan year deductions equals $3,249.90, which is greater than the $2,500 permitted by the IRS for the calendar year 2013. This could cause tax consequences for the participants as well the plan for permitted the deductions.

MedBen strongly recommends that groups change their 2012 Health FSA maximum to $2,500 to avoid potential tax issues for plan participants in 2013. Our Health FSA clients with questions regarding this change are welcome to call Sharon A. Mills, Director of Administrative Services, at (800) 423-3151, Ext. 438.

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