Today the IRS announced under Revenue Procedure 2017-58, the 2018 annual inflation adjustments for more than 50 tax provisions, including the tax rate schedules, and other tax changes. Included in the announcement is the inflation adjusted 2018 limits for health flexible spending accounts (FSAs) under an IRC §125 cafeteria plan and the Parking and Transit account limits under an IRC §132 Transportation Plan.
The pre-tax salary reduction limit for health FSAs will increase to $2,650 for plan years on or after January 1, 2018.
The health FSA pre-tax salary reduction limit is per employee, per employer, per plan year. If the employer contributes to the health FSA, the employer’s contribution is in addition to the amount that the employee can elect to set aside through pre-tax salary reductions. As a result, the employee could have more than $2,650 available per plan year to reimburse qualified medical expenses if the employer contribution is part of the plan design.
In addition, if an employer has adopted the up to $500 rollover (carryover) for the health FSA, any amount that rolls over into the new plan year does not affect the maximum election the employee can make.
For Transportation Plans, Parking and Transit limits for 2018 each increase to $260 per month.
Unlike the pre-tax health FSA maximum, the limits under a Transportation plan will include any employer contribution towards the Parking or Transit Benefits. Therefore, any employer contribution reduces the amount an employee can elect as a pre-tax amount for their Parking or Transit Benefits.
For a complete review of the updates to the 2018 tax provisions refer to Revenue Procedure 2017-58.