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IRS Issues Guidance on Implementation of $2,500 Health FSA Limit
Spencer Fane Link to more items from this source
May 31, 2012
"The Notice provides transition relief for contributions in excess of the $2,500 limit that are due to a reasonable mistake (and not willful neglect) and that are later corrected by the employer. To accomplish this correction, the employer must refund the excess amount to the employee as taxable wages and then report that amount on the employee's W-2 for the year the refund is made. Interestingly, the Notice also requests comments on whether the IRS should modify the 'use it-or-lose it' rule applicable to health FSAs. Although the request for comments doesn't explicitly state this, the IRS seems to be looking for ways to soften the tax blow associated with the $2,500 limit. They may also be trying to head off legislative proposals along the same lines."

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