The IRS has issued new guidance on an important change for flexible spending accounts (FSAs) beginning in 2013. (IRS Notice 2012-40)
Alert: A $2,500 cap will apply to contributions made to health care FSAs. The limit on FSAs for dependent care expenses remains at $5,000.
This change was included in the Patient Protection and Affordable Care Act of 2010 (PPACA) upheld by the U.S. Supreme Court.
Here’s the whole story: With a health care FSA, you and other participating employees can choose to allocate a portion of salary to a separate account. The contributions are exempt from federal income tax and payroll taxes, so both the employer and the employees save money.
Any withdrawals from the account used to pay for qualified medical expenses are tax-free. This includes medical and dental expenses that would qualify for deductions on your personal tax return.
Typically, the participant decides how much he or she wants to contribu...(register to read more)