On Oct. 18, 2022, the IRS released Revenue Procedure 2022-38 (Rev. Proc. 22-38) to announce various inflation-adjusted tax limits for 2023, including the limit on employees’ salary reduction contributions to health flexible spending accounts (FSAs) offered under cafeteria plans.
Rev. Proc. 22-38 increases the health FSA dollar limit on employee salary reduction contributions to $3,050 for plan years beginning in 2023. This is a $200 increase from the 2022 health FSA limit of $2,850. Rev. Proc. 22-38 also increases the maximum carryover limit for a health FSA to $610 for 2023 (from $570 for 2022).
Employers should ensure that their health FSAs will not allow employees to make pre-tax contributions in excess of $3,050 for the 2023 plan year and communicate the 2023 limit to their employees as part of the open enrollment process.
An employer may impose its own dollar limit on employees’ salary reduction contributions to health FSAs as long as the employer’s limit does not exceed the IRS’ maximum limit in effect for the plan year. For example, an employer may decide to limit employee health FSA contributions for the 2023 plan year to $2,500.
Several other types of plans have also been adjusted for inflation in 2023, including HSAs, HDHP minimum deductibles and out-of-pocket maximums, and dependent care FSAs. Click here for a handy PDF you can print or save and share with your employees that summarizes the major 2023 limit changes as compared to 2022.
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