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IRS Issues Guidance on $2500 Health FSA Limit - May 30, 2012

Today the IRS released Notice 2012-40 providing guidance to employers sponsoring health flexible spending accounts on the $2500.00 maximum employee contribution limit mandated by the Affordable Care Act.   The guidance addresses implementation by plans maintained on a non-calendar year basis as well as plans with a grace period.  According to the IRS, it will interpret the effective date of the $2500.00 maximum contribution limit as being the first day of the plan year on or after January 1, 2013. 

 

This means that an employer whose plan runs from April 1 through March 31 does not have to implement the contribution limit until April 1, 2013.  Additionally, a plan that provides for a grace period does not violate the maximum contribution limit if it allows unused salary reduction contributions to be carried over into the grace period as such amounts do not count against the $2500.00 limit for the subsequent plan year.  The Notice also clarifies that the $2500.00 limit applies only to employee salary reduction contributions and not to employer non-elective contributions. 

 

A copy of the IRS notice can be accessed at www.irs.gov/pub/irs-drop/n-12-40.pdf.