It's open enrollment season for many employees and I was recently posed the following question:
"When we are deciding how much to put in to the FSA plan, I remembered you said the limit is $3,200 per family. I saw somewhere that said $3,200 per employee. Can you please confirm what is the correct information? Does my spouse need to be enrolled in their own health insurance plan to participate in their FSA, or can they be a dependent on my plan and both enroll in our FSA?"
As a reminder, we do not offer tax advice, so it’s important to verify this with your accountant or CPA. However, here is what the IRS states:
IRS 2024 Flexible Spending Arrangement Contribution Limit (IR-2023-234, Dec. 8, 2023)
WASHINGTON— During open enrollment season for Flexible Spending Arrangements (FSAs), the Internal Revenue Service reminds taxpayers that they may be eligible to use tax-free dollars to pay medical expenses not covered by other health plans through their FSA.
For 2024, there is a $150 increase to the contribution limit for these accounts. An employee who chooses to participate in an FSA can contribute up to $3,200 through payroll deductions during the 2024 plan year. Amounts contributed are not subject to federal income tax, Social Security tax or Medicare tax.
If the plan allows, the employer may also contribute to an employee's FSA. If the employee's spouse has a plan through their employer, the spouse can also contribute up to $3,200 to that plan. In this situation, the couple could jointly contribute up to $6,400 for their household.
For FSAs that permit the carryover of unused amounts, the maximum 2024 carryover amount to 2025 is $640. For unused amounts in 2023, the maximum amount that can be carried over to 2024 is $610.
It's important for taxpayers to annually review their health care selections during health care open enrollment season and maximize their savings.
Eligible employees of companies that offer a health flexible spending arrangement (FSA) need to act before their medical plan year begins to take advantage of an FSA during 2024. Self-employed individuals are not eligible to participate in FSA plans.
*Projected limits for 2025 are: Full FSA - $3,300 per employee. Rollover Maximum - $660
Keep in mind that both you and your spouse need to have plans offered through your respective employers. In other words, you must both be eligible employees to enroll in these plans. Even if you work for the same employer and are both eligible to participate you can each contribute the maximum.
Also, remember that FSA funds are "use-it-or-lose-it" dollars, with a maximum of $640 that can be rolled over to 2025 if unused in 2024.
If you are looking for an even larger tax benefit, you might consider enrolling in a High-Deductible Health Plan (HDHP) at the next open enrollment, which would make you eligible to contribute to a Health Savings Account (HSA). HSAs allow you to contribute and not pay taxes on up to $8,300 if you enroll in family coverage or $4,150 for an individual in 2024. (HSA contribution limits for 2025 are $8,550 if you are enrolled in family coverage and $4300 if enrolled in individual coverage.) You mustbe enrolled in an HDHP to make an HSA contribution and you and your spouse cannot double-dip. This is an IRS limit for the household. HSA accounts are individually owned, and 100% of unused funds carry over to future years and can be used any time in the future for eligible healthcare expenses, even if you aren't enrolled in an HDHP in the future.
It’s important to note that if you contribute to an HSA, you cannot contribute to a general-purpose FSA. However, you may still contribute to a Limited Purpose FSA for vision and dental expenses only. The same contribution and rollover limits apply, so if you are paying for orthodontia and glasses twins for twins next year you could max out all your plans, but the use-it-or-lose-it still applies to FSA dollars. Additionally, you can still contribute the maximum of $5,000 to a Dependent Care FSA per family to reimburse childcare expenses.