Health Care FSA Limit Projected To Increase For 2019

posted on

As you may recall, the Affordable Care Act (ACA) put a cap on Health Care FSA salary reductions in 2013, subject to Consumer Price Index (CPI) adjustments in future years. The Tax Cuts and Jobs Act (aka “Tax Reform”) enacted December 22, 2017, changed the measure of inflation to the average chained CPI-U (C-CPI-U) for the 12 month period ending August 31.

The August 2018 CPI was released September 13, 2018 by the Department of Labor and Thomson Reuters has used the C-CPI-U for the 12 month period ending August 31 and have reported projected inflation adjustments for 2019 for health, charitable, compliance and other specialty items.

Most notably a projected increase to the 2019 Health Care flexible spending account (FSA) Limit of $50 or an annual maximum is $2,700 per plan year.

Keep in mind the following:

These benefit adjustments are not official until the IRS releases a Revenue Procedure on this and other benefit limits later this fall, however, we have reason to believe that this $2,700 Health Care FSA limit will be effective for 2019.

  • This is a projected increase and the IRS typically announces the official increase to benefit limits around the third Thursday in October (10/18/18).

  • The new limit would apply for the first plan year on or after January 1, 2019.

  • The Health Care FSA pre-tax deduction limit is per employee, per employer, per plan year.

  • If an employer contributes to the Health Care FSA, the employer’s contribution is in addition to the amount that the employee can elect.  The employee can elect up to the salary reduction maximum and still receive the employer’s contribution. The employee could have more than the projected $2,700 available to reimburse expenses if employer contributions are part of the plan design.

  • If an employer contribution can be taken as taxable income (cash), the employer contribution amount is part of the $2,700 limit.

  • If an employer has adopted the $500 rollover (carryover) for the Health Care FSA, any amount that rolls over into the new plan year does not affect the maximum election the employee can make for the new plan year.

  • An Employer that has the maximum Health Care FSA set as “statutory maximum” in their plan document will not need to formally amend the cafeteria plan to incorporate the new limit, the increase is automatic.

  • An Employer is not required to adopt to the new Health Care FSA increase, and may keep an established Health Care FSA maximum as a specific dollar amount ($2,650 for example) and keep the same limit for 2019.  However, if an employer wants to take advantage of the new projected increase to the annual maximum, an employer is required to amend the plan to increase the Health Care FSA maximum.

  We will continue to monitor this and will provide updates accordingly.

Categories: Benefits in General, Health Care Reform, Compliance | Tags: Health Care FSA , Flexible Spending Account , Projected Health Care FSA Limit , $2700 per plan year , Affordable Care Act , Tax Reform , C-CPI-U , 2019 | Return