IRS Announces 2023 Inflation Adjusted Limits for Health FSAs, Commuter Benefits and Adoption Assistance

On October 18, 2022, the IRS issued Revenue Procedure 2022-38, providing certain cost-of-living adjustments for a wide variety of tax-related items, including health FSA contribution limits, transportation and parking benefits, qualified small employer health reimbursement arrangements (QSEHRAs), the small business tax credit and other adjustments for tax year 2023. Those changes are outlined below.

• Health FSA. The annual limit on employee contributions to a health FSA will be $3,050 for plan years beginning in 2023 (up $200 from 2022). In addition, the maximum carryover amount applicable for plans which permit the carryover of unused amounts is $610 (up $40 from 2022).
• Dependent FSA (DCAP). The annual limit on employee contributions to a DCAP will remain at $5,000/$2,500 for 2023 and future years unless extended or amended by Congress.
• Qualified transportation fringe benefits. For 2023, the monthly limit on the amount that may be excluded from an employee’s income for qualified parking increases to $300, as does the aggregate fringe benefit exclusion amount for transit passes (both up from $280 in 2022).
• QSEHRAs. For 2023, the maximum number of reimbursements under a QSEHRA may not exceed $5,850 for self-only coverage and $11,800 for family coverage (an increase from $5,450 and $11,050 in 2022).
• Adoption assistance program. The maximum amount an employee may exclude from his or her gross income under an employer-provided adoption assistance program for the adoption of a child will be $15,950 for 2023 (a $1,060 increase from the 2022 maximum of $14,890). This exclusion begins to phase out for individuals with modified adjusted gross income greater than $239,230 and will be entirely phased out with a $279,230 modified adjusted gross income.
• Small business healthcare tax credit. For 2023, the average annual wage level at which the credit phases out for small employers is $30,700 (up $2,000 from 2022).

Employers with limits that are changing (such as for health FSAs, transportation/commuter benefits and adoption assistance) will need to determine whether their plans automatically apply the latest limits or must be amended (if desired) to recognize the changes. Any changes in limits should also be communicated to employees.

IRS Revenue Procedure 2022-38 »