Under provisions of the Patient Protection and Affordable Care Act (PPACA), salary reduction contributions made to a health care Flexible Spending Account (FSA) will be capped at $2,500 annually effective January 1, 2013. The new FSA limit is set per individual so each working spouse could elect up to $2,500.

Per the law, the FSA limit applies on a taxable year basis and is not tied to an employer’s plan year. This means that employers who sponsor a calendar-year health care FSA need only set their FSA limit at $2,500 for the 2013 plan year. However, employers who sponsor non-calendar year plans may face challenges regarding the new FSA limit, as the health care FSA would end after January 1, 2013. For example, an employee may exceed the $2,500 limit for 2013 based on the elections he or she makes in 2012. Therefore, non-calendar year plans should consider lowering the contribution levels this year to avoid any conflict. To date, IRS has not issued guidance regarding non-calendar year FSA compliance but it is important for affected plans to be proactive and make the necessary changes now.

Note that Dependent Care FSAs are not impacted and still have a $5,000 annual maximum per household.

If you have any questions about the new FSA limits mandated by PPACA, please contact your team at WGA.