IRS Reminds of Health FSA Benefits for Open Enrollment

November 19, 2024

On November 7, 2024, the IRS issued a reminder to employees with access to health flexible spending arrangements (FSAs) through their employer on the advantages of using these arrangements to pay for medical expenses with tax-free dollars. For plan years beginning in 2025, health FSA and limited-purpose health FSA plan year limits will increase from $3,200 to $3,300 with the entire plan year election amount available on the first day of the plan year. The maximum carryover amount increases from $640 to $660.

Employers with non-calendar year health FSA plans must continue to rely on the limits established for their 2024 plan year until the beginning of their 2025 plan year. Employers can choose to provide a lower salary reduction limit but cannot exceed the IRS plan year maximum. Employer contributions, if any, do not count toward the plan year maximum.

The maximum annual health FSA salary reduction amount is a per-employer limit; an employee who has more than one employer can make health FSA elections up to the maximum allowed by each employer. Similarly, if an employee’s spouse has a plan through their own employer, the spouse can also contribute up to $3,300 to that plan. In this situation, the couple could jointly contribute up to $6,600 for their household.

The reminder also highlights certain qualified medical expenses that employees can pay for with health FSA funds, assuming those expenses are not otherwise covered or reimbursed by their health plan or other source. These include copays, deductibles, and a variety of prescription or over-the-counter medical, dental, and vision products and services. Note, however, that employers can limit the types of expenses that are reimbursable from a health FSA, provided such limitations are memorialized in the health FSA plan document. Further, employers or plan administrators are responsible for obtaining the relevant information to substantiate claims before processing reimbursement requests. This includes determining that the claim was incurred by a covered individual during the coverage period.

For a list of qualified medical expenses that may be paid for with health FSA funds, please download a copy of the PPI publication Qualified Medical Expenses.

IRS: Healthcare FSA Reminder