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May 30 2012

2013 Health Care FSA Limit of $2,500

By: Timothy J. Tornga

It is hard to keep one eye on the Supreme Court, another eye on Congress and the election and have any resources left to address your obligations under the Affordable Care Act. But here is an issue that bears some immediate attention for some.

First of all, all health care flexible spending account (FSA) plans must limit their health care flexible spending accounts to $2,500. The plan must affirmatively recite a limit of $2,500 or less for “taxable years” beginning January 1, 2013 and later. If you have already adopted this limit, then be prepared to either keep the limit because it suits you or to amend your plan to raise the limit in the event either the Supreme Court or Congress changes the Affordable Care Act. We recommend you review your plan late in the year to address your opportunities or limitations. If you have not amended your health care flexible spending account plan to adopt the $2,500 (or lesser) limit, then be prepared to do so before the end of 2012.

Health care flexible spending account plans that operate on a noncalendar fiscal year face special problems. If your plan operates on a July 1 through June 30 plan year and presently has a limit greater than $2,500, you face special challenges. In the case of a June 30 year end plan allowing a $6,000 election, what happens after May 31, 2013 when the employee has made contributions of $2,500 ($500/month) from January 1, 2013 through May 31, 2013? And can this employee make any contributions at all for the July 1, 2013 through June 30, 2014 plan year?

The IRS is studying this issue to determine if they will offer some interpretive guidance. There is no assurance that their guidance, if any, will be timely or helpful. If your plan operates on noncalendar year basis, we recommend you review the plan before the end of the current plan year and make sure it specifies a plan year limit. And if your plan allows a health care flexible spending account election greater than $2,500, then we recommend you call so we can discuss the appropriateness of amending your plan before the end of the plan year, counseling your employees or both.

If you have questions, please call Tim Tornga at 616 632 8090 or one of the labor lawyers of the firm.

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"2013 Health Care FSA Limit of $2,500," 5/30/2012