Feds validate TASC’s FSA position

Aggressive pro-Client / pro-Provider stance helps set public policy

The wait is finally over! On Wednesday, May 30, the IRS issued final guidance regarding the $2,500 limit for health Flexible Spending Accounts (FSAs).

Specifically, IRS Notice 2012-40 (http://www.irs.gov/pub/irs-drop/n-12-40.pdf) provides the following highlights:

  • Because employees make salary reduction contribution elections for health FSAs only on a plan year basis, the term “taxable year” refers to the plan year of the plan. Accordingly, the $2,500 limit on health FSA salary reduction contributions applies on a plan year basis. Therefore, the rule will not affect any plans beginning prior to January 1, 2013. 
  • The $2,500 limit on salary reduction contributions to a health FSA applies on an employee-by-employee basis; meaning that each spouse may elect to make salary reduction contributions of up to $2,500, even if both participate in the same health FSA sponsored by the same employer.

Please note that the statutory $2,500 limit applies only to salary reduction contributions under a health FSA, and does NOT apply to employer contributions.

And that’s not all – here’s another very favorable development…the notice also solicits comments focusing on the “use or lose” requirement. This appears to signal that the administration is seriously considering modification (or perhaps even elimination) of this outdated and ineffective provision.

All of the above is great news, especially for non-calendar year plans and plan sponsors.

Score one for TASC!

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