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IRS Announces FSA Limit Will Increase For 2017

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 October 25, the IRS released the annual inflation numbers for 2017 in Revenue Procedure 2016-55 (Rev. Proc. 16-55). Rev. Proc. 16-55 increased the FSA dollar limit on employee salary reduction contributions to $2,600 for taxable years beginning in 2017. It also includes annual inflation numbers for 2017 for a number of other tax provisions.

Employers should ensure that their health FSA will not allow employees to make pre-tax contributions in excess of $2,600 for 2017, and they should communicate the 2017 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. This means that an employer may continue to use the 2016 maximum limit for its 2017 plan year.

Be on the lookout for next week’s Compliance Confidence E-News as our compliance thought leader Annette Bechtold will provide a deeper insight on the action steps employers will need to be mindful of for the 2017 plan year.


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