What Are the FSA Limits for 2023?
With costs rising yearly, it’s becoming increasingly difficult for everyday people to pay for their annual medical expenses. In addition to increasing health insurance premiums, the costs for the actual medical expenses that people are forced to pay out of pocket are also growing. To help offset some of these costs, the IRS has created multiple savings accounts that allow people to set aside money on a tax-free basis to help them pay their medical expenses. One of the most popular plan types is a Flexible Spending Account or FSA.
The IRS annually sets contribution limits for FSAs and other tax-advantaged medical savings accounts. Below, we’ll explain FSAs, how they can be used, and the IRS limits for 2023.
How Do FSAs Work?
FSAs are special medical savings accounts that allow people to set aside money to pay for qualified medical expenses. The advantage of putting money into these accounts is you won’t have to pay any taxes on this money. This allows people to reduce their medical expenses by the amount they would’ve paid in taxes on that money.
So, for instance, if you had paid $200 in taxes on the $1,000 you put in an FSA, you would save $200 years in medical expenses. Of course, how much you would save depends on how much you contribute to your FSA and your tax rate.
Unlike some other health-specific savings accounts, FSAs are set up by your employer, who has some control over how the plan works. If you have an FSA and want it to pay for a qualified medical expense, you must first submit a claim to the actual FSA through your employer. Along with the claim, you’ll need to submit a statement showing the expense not covered by your health insurance plan. Once approved, the FSA will reimburse you for the costs you incurred.
What Can FSAs Be Used For?
FSAs can be used to pay for qualifying medical expenses that you must pay out of your pocket. The IRS publishes a long list of expenses that qualify to be paid for using an FSA, and they update this every year. The funds in an FSA can be used to cover the medical expenses of the employee, their spouse, and any dependents they have.
Generally speaking, these accounts can be used to pay for costs such as coinsurance, copayments, deductibles, and some prescription and over-the-counter drugs. FSAs can’t be used to pay for health insurance premiums, though.
What Are the FSA Contribution Limits for 2023?
The IRS sets annual contributions limits for FSAs, adjusting them yearly based on the country’s economic climate. The limits for 2023 increased rather significantly based on inflation.
In 2023, the maximum salary deferral contribution to FSAs is $3,050; this is an increase of $200 over the limits for 2022, which is double the increase that occurred the prior year. In addition, if both spouses in a married couple are covered by their FSA, then each spouse can make this contribution to their employer.
Employers may elect to allow employees to carry over funds in their FSA that they didn’t use from the year before. However, the IRS limits the maximum amount that can be carried over from one year to the next. For 2023, the maximum carryout limit has increased to $610, a $40 increase from 2022.
Are Employers Required to Contribute to FSAs?
While employers set up FSAs for their employees and have some control over how they work, they are not required to contribute on their employees’ behalves. However, they are allowed to make contributions.
Employers that choose to do this can realize a few benefits as well. For one, employers can avoid paying the payroll tax of 7.65% on the amount that is contributed to these plans. In addition, it can serve as a great recruiting and retention tool for companies.
Unlike other health-related savings accounts, such as Health Savings Accounts (HSAs), employer contributions to FSAs can be above and beyond the maximum salary deferral contribution for the employees. In other words, employees can contribute $3,050 in 2023 to their FSA and still use money in their FSA that their employer contributes.
Beckham Insurance Group Has You Covered
Providing an FSA to your employees is a great way to boost recruitment and retention efforts. In addition, you can offer your employees more peace of mind by helping reduce their overall medical expenses.
Interested in learning more? If you’re in the South Carolina or Georgia area, contact our team at Beckham Insurance Group for a free proposal for your business. Our experienced professionals have the knowledge and experience to provide you with the coverage you need to create a healthier and happier workplace.
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