The Affordable Care Act (ACA) imposes a dollar limit on employees’ salary reduction contributions to health flexible spending accounts (FSAs) offered under cafeteria plans. This dollar limit is indexed for cost-of-living adjustments and may be increased each year.

On Nov. 6, 2019, the Internal Revenue Service (IRS) released Revenue Procedure 2019-44 (Rev. Proc. 19-44), which increased the health FSA dollar limit on employee salary reduction contributions to $2,750 for taxable years beginning in 2020. It also includes annual inflation numbers for 2020 for a number of other tax provisions.

Highlights

  • Employees’ salary reduction contributions to health FSAs are subject to a maximum dollar limit.
  • The initial dollar limit was $2,500. For 2019, the dollar limit was increased to $2,700.
  • For the 2020 plan year, the health FSA dollar limit will be further increased to $2,750.

Action Steps

Employers should ensure that their health FSA will not allow employees to make pre-tax contributions in excess of $2,750 for 2020. If employers decide to increase their limit, they should communicate their new 2020 limit to their employees as part of the open enrollment process.

An employer may continue to impose its own health FSA limit, as long as it does not exceed the ACA’s maximum limit for the plan year.

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