The Internal Revenue Service recently announced the flexible spending account (FSA) limit will increase in 2018 to $2,650. The amount goes up $50 from the 2017 limit of $2,600.
Employers may continue to impose their own dollar limits on employees' salary reduction contributions to their health FSAs, as long as the company's limit does not exceed the maximum limit imposed for that plan year by the IRS. For example, an employer may continue to impose a $2,500 limit in 2018, instead of reaching the maximum of $2,650.
The health FSA limit applies on an employee-by-employee basis. Each employee may only elect up to $2,650 in 2018, regardless of whether they also have family members who benefit from the FSA funds. However, each member who is eligible to participate in their own FSA will have a separate limit. For example, a husband and wife who each have their own FSA may both make contributions of up to $2,650 in 2018.
If an employee participates in multiple cafeteria plans that are maintained by employers under common control, their total FSA contributions under all of the cafeteria plans are limited to $2,650. However, if the employee health FSAs through two or more unrelated employers, they may make contributions of up to $2,650 under each employer's FSA.
Employers have the option of adding a grace period or carry-over feature to their FSAs. A cafeteria plan may include a grace period of up to two months and 15 days immediately following the end of a plan year. If there is a grace period, an employee may use amounts remaining from the previous plan year to pay for expenses incurred for certain qualified benefits during that time. If the FSA is subject to a grace period, unused contributions that are carried over do not count against the $2,650 limit applicable in 2018.
If the FSA does not include a grace period, employees may still be allowed to carry over up to $500 of unused funds into the next plan year. The grace period is an exception to the "use-it-or-lose-it" rule that usually restricts any contributions under an FSA from being used in a following plan year. An FSA carryover does not affect the limit on contributions.