The IRS has released Revenue Procedure 2022-38 confirming that for plan years beginning on or after January 1, 2023, the health FSA salary reduction contribution limit will increase to $3,050.
The adjustment for 2023 represents a $200 increase to the current $2,850 health FSA salary reduction contribution limit.
The contribution limit is set by the ACA (originally $2,500) and adjusts in $50 increments based on a complex cost-of-living calculation tied to the chained and standard consumer price index increases. The high inflation levels in 2022 were sufficient to boost the health FSA salary reduction contribution limit by four $50 increments ($200 total) to $3,050 for plan years beginning on or after January 1, 2023.
What About the Carryover Limit into 2024?
The indexed carryover limit for plan years starting in calendar year 2023 to a new plan year starting in calendar year 2024 will increase to $610.
The $500 carryover limit is indexed at 20% of the maximum health FSA salary reduction contribution for the plan year. The indexed carryover limit increases in multiples of $10. The adjustment to $610 (20% of the $3,050 limit) for amounts carried into 2024 represents a $40 increase to the $570 carryover limit in effect for amounts carried into 2023.
Note that the CAA FSA relief provisions permitted employers to offer carryovers of the full unused FSA balance from plan years ending in 2020 and 2021 into the subsequent plan years ending in 2021 and 2022, respectively. This relief has expired and is no longer available for carryovers into 2023 or carryovers into 2024.
- Carryover Limit from a Plan Year Starting in 2022 to a Plan Year Beginning in 2023: $570
- Carryover Limit from a Plan Year Starting in 2023 to a Plan Year Beginning in 2024: $610
What About Employer Contributions?
As a reminder, employer contributions (including non-cashable flex credits) generally cannot exceed $500 per plan year for the health FSA to maintain excepted benefit status. Non-excepted health FSAs cannot comply with the ACA market reform mandates.
Therefore, in most cases the maximum health FSA amount available for plan years beginning on or after January 1, 2023 will be limited to $3,050 (max employee salary contribution) + $500 (max employer contribution, if offered) = $3,550 (combined).
Also, keep in mind that the health FSA eligibility cannot be broader than the major medical plan eligibility to maintain excepted benefit status (as required by the ACA). In other words, the health FSA should never be available to an employee who is not also eligible for the major medical plan (regardless of enrollment status).
Other Notable 2023 Employee Benefit Amounts
- Dependent Care FSA: The dependent care FSA limit remains fixed (with no inflation adjustment) at $5,000. While ARPA increased the dependent care FSA limit to $10,500 for calendar year 2021, the increased limit automatically sunsetted at the end of 2021. The limit has reverted to the standard $5,000 cap going forward (including the 2022 and 2023 calendar year).
- Commuter Benefits: The transit pass/vanpooling and parking limits will be $300 per month (up from $280). As a reminder, commuter plans can now permit transit pass/vanpooling amounts to be rolled over to a parking benefit balance (and vice versa) under new IRS guidance.
- Adoption Assistance: The adoption assistance plan limit will be $15,950 (up from $14,890). See our Newfront Office Hours Webinar: Fringe Benefits for Employers for more details.
- HSA Limits: The IRS released the 2022 HSA limits back in May. The individual contribution limit will be $3,850 (up from $3,650) and the family contribution limit will be $7,750 (up from $7,300). See our full alert and our Newfront Office Hours Webinar: Go All the Way with HSA for more details.
- ACA Employer Mandate Affordability: The 2023 affordability safe harbor significantly percentage decreases from 9.61% to 9.12%. This sets the federal poverty line affordability safe harbor at a $103.28 maximum monthly employee-share of the premium for the lowest-cost plan option at the employee-only tier. See our full alert for more details.
- ACA Pay or Play Penalties: The 2022 annualized employer mandate pay or play penalties will increase to $2,880 (the Section 4980H(a) “A Penalty”) and $4,320 (the Section 4980H(b) “B Penalty”) annualized. See our Newfront ACA Employer Mandate & ACA Reporting Guide for more details.
- ACA Reporting: The deadline to furnish 2022 Forms 1095-C to employees will be March 2, 2023. Last year, the IRS proposed new ACA reporting regulations that make permanent the 30-day extension from the otherwise standard January 31 deadline. The extension from the proposed rules applied to the 2022 season of ACA reporting, and it appears very likely the proposed rules will be finalized to continue this 30-day extension into perpetuity. Keep in mind that IRS did not extend the good faith enforcement safe harbor from penalties for incorrect or incomplete information on the Forms 1094-C and 1095-C (generally $290 per return in 2023).
The Form 1094-C and copies of the Forms 1095-C must be filed with the IRS by the standard deadlines of February 28, 2023 (by paper) or March 31, 2023 (electronic filing, required for 250 or more returns). Note that the IRS has also proposed regulations that would reduce the required electronic filing threshold to employers filing just 10 or more returns.
- San Francisco HCSO: The 2023 required health expenditure rates will be $3.40 per hour payable for large employers (up from $3.30) and $2.27 per hour payable for mid-sized employers (up from $2.20). See our full alert and our Newfront San Francisco HCSO Guide for more details.
The information provided is of a general nature and an educational resource. It is not intended to provide advice or address the situation of any particular individual or entity. Any recipient shall be responsible for the use to which it puts this document. Newfront shall have no liability for the information provided. While care has been taken to produce this document, Newfront does not warrant, represent or guarantee the completeness, accuracy, adequacy, or fitness with respect to the information contained in this document. The information provided does not reflect new circumstances, or additional regulatory and legal changes. The issues addressed may have legal, financial, and health implications, and we recommend you speak to your legal, financial, and health advisors before acting on any of the information provided.