In an announcement made on October 18, the IRS declared an increase in the yearly contribution limit for health care flexible spending accounts (FSAs) for the coming year. Employees will now have the opportunity to contribute up to $3,050, which is a significant jump from the previous year’s $2,850 limit. This $200 hike is notably double the $100 increment seen from 2021 to 2022, a change that is aligned with recent inflation rates.
For those companies that allow employees to roll over unused health FSA funds, the maximum rollover amount has also seen an increase. The new cap is set at $610, up from the prior year’s $570.
Apart from health FSAs, the IRS also stated that there would be cost-of-living adjustments (COLAs) for 2023 affecting employer-sponsored commuting benefits and adoption assistance programs. These updates were published in Revenue Procedure 2022-38 and elaborated upon in a subsequent press release.
In contrast to previous years when FSA limits were typically revealed in November, this year’s earlier announcement will give employers additional time to integrate these changes into their open enrollment processes and informational materials.
Legal experts at the international law firm McDermott Will & Emory pointed out in a blog post that these updates come at a critical time, especially for those companies in the midst of 2023’s open enrollment season. They recommended that plan sponsors should act expeditiously to adjust payroll systems, update plan administration, and revise open enrollment communications to reflect these new limits.
On a separate note, the IRS also revealed COLAs for 2023 for 401(k) contributions and other similar defined contribution plans, as well as annual limits for defined benefit pension schemes.
Originally reported by Stephen Miller, CEBS.