Ask the Experts: FSA Limits

California Employment Law Update – September 2018
September 24, 2018
Redesigned W-4 Form to Launch in 2020
September 25, 2018

Question: Our company offers flexible spending accounts (FSAs) for health care and dependent daycare. Our plan limits are the maximum amounts allowed by federal law. Will the IRS increase the limits for 2019? We hold open enrollment in November for employees to make their FSA elections for the following year.

Answer: The maximum annual limits for Dependent Care FSAs and Health Care FSAs are set forth under § 129 and § 125, respectively, of the Internal Revenue Code.

The § 129 (Dependent Care) limits do not change from year to year. They are currently $5,000, or $2,500 if married and filing separately, and they apply on a calendar-year basis. To change them would require a change in law, which is unlikely in the current Congress.

On the other hand, the maximum limit for elective contributions to a Health Care FSA (HFSA) may change from year to year depending on inflation. The limit applies on a plan-year basis and the HFSA limit for a 12-month plan year beginning in 2018 is $2,650. The limit is one of over 50 different tax provisions that is subject to annual cost-of-living or inflation adjustments. Each fall, the IRS announces any changes for the following year. The announcement usually is released in mid-October, which should give employers time to prepare 2019 enrollment materials.

Based on estimated inflation, it appears the HFSA limit will increase from $2,650 for plan years beginning in 2018 to $2,700 for plan years beginning in 2019. The increase will not be official, however, until the IRS announcement is released.

How Can We Help?

Continue to follow our blog. We will post the 2019 benefit limits for HFSAs, commuter benefits, 401(k) plans, and many other programs, just as soon as the IRS announcement is released.

FSAs are just part of the fall frenzy of open enrollment. Learn five steps for open enrollment success in Do You Have Mixed Emotions about Open Enrollment? ThinkHR customers can also watch an on-demand webinar, Open Enrollment: Start Early, Communicate Often.

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