Health FSA maximum

[Guest treitzel]

My employer sets its health FSA annual maximum at $3,000. When I asked why they don't use the $5,000 maximum I've worked under at 2 previous jobs, the response was that they are limited to $3,000 per year because of their number of staff. They have about 25 staff. Contributions to the FSA are by the employee only; the employer doesn't make any contributions to it.

Could this $3,000 be an IRS limit? I'm thinking that there is some financial drawback for my employer to go to $5,000 max employee contribution.

[J Simmons]

The employer sets the dollar limit when establishing or amending the flex plan.

There is a potential loss to the employer with a health flex account; the entire annual amount elected must be available to reimburse for expenses incurred from day 1 of the plan year. If the employment ends mid plan year, then the use of the flex account may exceed the amount recouped by the employer in payroll deductions.

There is also a nondiscrimination notion that the benefit must be available to all eligible employees. For example, suppose that extremely lax eligibility rules would allow into the flex plan an employee that earns just $3,000. If the annual flex cap were set higher, this employee is effectively limited to $3,000 anyway. This could be a discrimination problem. Consequently, some employers will set the annual cap on what an employee may elect for a health flex plan at no more than minimum wage multiplied against the minimum hours an employee could work in a year and yet be eligible for the flex plan.

[Lori Friedman]

It sounds as if your employer's mixing apples and oranges. The $5,000 limit is for dependent care benefits, not for FSA. There's no statutory or administrative limit on an annual FSA election. As JSimmons discussed, however, an employer has very valid reasons for wanting to place a reasonable cap on FSA contributions.

[LRDG]

IRS regs state that 125 plans must state a medical FSA max., with the amount determined by the plan. Dependent care FSA maximum is determined by IRS regs., $5k, or $2,500 if married filing seperate returns.