The Internal Revenue Service (IRS) has made significant changes to the contribution limit for a key employee health care account. In addition, the amount of money that can be rolled over to the next year has been increased. Flexible Spending Arrangement (FSA) allows employees to pay for medical expenses using a savings account funded by their wages. According to a press release from the IRS on Dec. 8, there is an increase of $150 in the contribution limit for these accounts in 2024. Employees can contribute up to $3,200 through payroll deductions during the 2024 plan year. The contributions are not subject to federal income tax, Social Security tax, or Medicare tax. For 2023, the contribution limit was $3,050.
For couples, a joint contribution of up to $6,400 can be made for their household, if the plan allows it, the employer can also contribute to the employee’s FSA. These funds can be used to cover expenses such as copayments, prescription medications, dental care, and over-the-counter drugs that may not be covered by an employee’s health plans. However, it is important to note that funds in the account will expire at the end of the year, and only a small portion can be carried over to the next year.
The maximum amount that can be carried over from 2023 to 2024 is $610, and this increases slightly to $640 in 2024. It is important for taxpayers to carefully plan their non-insured health care expenses annually and limit contributions to this extent to avoid losing saved funds. Additionally, the IRS advises people to consider necessary supplies for the medicine cabinet, big-ticket medical expenses, routine checkups, eye exams, and seasonal purchases when budgeting their expected FSA health care expenses.
There are five types of FSAs that individuals can choose from, with health care FSA being the most common. Other types include limited-purpose FSA, dependent care FSA, adoption FSA, and commuter FSA. The 2024 enrollment season for FSA accounts began on Nov. 13 and will last through Dec. 11.
Health FSAs are employer-established benefit plans, and individuals can sign up for them at their workplaces. Employers must comply with certain requirements and there are restrictions on which employees can be covered. Contributions made to the FSA are not subject to federal income tax or employment taxes. Employees can withdraw the total amount they have chosen to contribute for the year at any time during the coverage period, provided they have incurred a medical expense that has not been paid for or reimbursed under any health coverage. Employers can contribute up to $500 towards their employees’ FSA, and any contribution beyond that must be matched dollar-to-dollar by the employee contribution.
Overall, these changes to the contribution limit and carryover amount for FSA accounts offer employees greater flexibility and opportunity to save on their health care expenses.
