The IRS has just released its 2017 annual inflation adjustments, in which it announced that the dollar limitation under Code section 125 on voluntary employee salary reductions for contribution to health flexible spending arrangements (health FSAs) is increasing to $2,600. Previously the limitation was $2,550. The authority for this increase can be found in Rev. Proc. 2016-55: https://www.irs.gov/pub/irs-drop/rp-16-55.pdf. This link takes you to the IRS annual inflation adjustments for more than 50 tax provisions. Another item to note is that the qualified transportation fringe benefit remains at $255.
Although open enrollment season is about to be in full swing for most, employers should ensure that their salary reduction agreements and related enrollment materials are updated to reflect this increase. Additionally, employers will want to review their Code section 125 cafeteria plan documents to ensure these also allow for such an increase.
Moreover, earlier this year in Rev. Proc. 2016-28, the IRS released the HSA limits for 2017:
IRS Revenue Procedure 2016-28 provides the adjusted limits for contributions to a Health Savings Account (“HSA”) as determined under Section 223 of the Internal Revenue Code, as well as the high deductible health plan (“HDHP”) minimums and maximums for calendar year 2017. The 2017 limits are as follows:
- Annual Contribution Limit
- Single Coverage: $3,400
- Family Coverage: $6,750
- HDHP-Minimum Deductible
- Single Coverage: $1,300
- Family Coverage: $2,600
- HDHP Maximum Annual Out-of-Pocket Expenses (including deductibles, co-payments and other amounts, but not including premiums)
- Single Coverage: $6,550
- Family Coverage: $13,100
- The catch-up contribution for eligible individuals age 55 or older by year end remains at $1,000.
Plans and related documentation, including employee communications, should be updated to reflect these new limits.
As always, please keep in mind that participation in a health FSA will result in HSA ineligibility, unless the health FSA is limited to: (1) limited-scope dental or vision excepted benefits; and/or (2) post-deductible expenses.
This correspondence is intended to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.
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Elizabeth H. Latchana specializes in employee health and welfare benefits. Recognized for her outstanding legal work, in both 2018 and 2015, Beth was selected as “Lawyer of the Year” in Lansing for Employee Benefits (ERISA) Law by Best Lawyers, and in 2017 as one of the Top 30 “Women in the Law” by Michigan Lawyers Weekly. Contact her for more information on this reminder or other matters at 517.377.0826 or firstname.lastname@example.org.