IRS Announcement

12 December 2023

As the open enrollment season for Flexible Spending Arrangements (FSAs) approaches, the Internal Revenue Service (IRS) has released updates that could impact the way taxpayers allocate funds for medical expenses in the coming year. In a recent announcement, the IRS revealed a notable $150 increase in the contribution limit for FSAs in 2024. This blog post explores the key details of this update and outlines important considerations for eligible taxpayers.

The 2024 Contribution Limit Increase:
For the 2024 plan year, employees participating in an FSA can contribute up to $3,200 through payroll deductions, marking a $150 increase from the previous limit. These contributions are significant as they are exempt from federal income tax, Social Security tax, and Medicare tax, providing eligible individuals with an opportunity to use tax-free dollars for a variety of medical expenses.

Employer and Spousal Contributions:
In addition to individual contributions, employers may choose to contribute to an employee's FSA. Moreover, if an employee's spouse has their own FSA through their employer, the spouse can contribute up to $3,200 as well. This opens up the possibility for a joint contribution of up to $6,400 for a household, allowing families to maximize their tax-free savings for healthcare expenses.

Carryover Provisions:
For FSAs that permit the carryover of unused amounts, the IRS has set the maximum carryover amount for 2024 to 2025 at $640. Individuals with unused funds from 2023 can carry over a maximum of $610 into the 2024 plan year. These carryover provisions provide flexibility for taxpayers to manage their healthcare expenses effectively.

Expenses Covered by FSAs:
FSAs can be used throughout the year for a wide range of qualified medical expenses not covered by standard health plans. This includes co-pays, deductibles, and various medical products. Services such as dental and vision care, eyeglasses, hearing aids, and even routine checkups or specialist visits not covered by regular insurance plans are eligible for FSA funds. Interested individuals are encouraged to check with their employer for details on eligible expenses and claim procedures.

Planning Ahead for Open Enrollment:
Before the medical plan year begins, eligible employees should review their healthcare selections during open enrollment and strategically plan their FSA contributions. This involves estimating expected healthcare expenses for the upcoming year, considering factors such as big-ticket expenses, seasonal needs, and routine checkups. Employers are not obligated to offer FSAs, so interested taxpayers should inquire with their employer to determine if this option is available to them.

The IRS's announcement of the 2024 FSA contribution limit increase provides an opportunity for eligible taxpayers to enhance their healthcare savings. By staying informed about these changes and carefully planning their contributions, individuals can make the most of tax-free dollars for qualified medical expenses. As the open enrollment season approaches, it's crucial for taxpayers to review their options, understand eligible expenses, and take advantage of the benefits offered by FSAs. For more detailed information, taxpayers can refer to IRS Publication 969, "Health Savings Accounts and Other Tax-Favored Health Plans," available on the official IRS website.