FSA Contribution Limit 2023 – The Flexible Spending Account FSA contribution limit for the Health Care Flexible Spending Account (HCFSA) and the Limited Expense Health Care FSA (LEX HCFSA) would be enhanced for 2023, the Internal Revenue Service (IRS) said back in October.
An employer-sponsored health benefit called a Flexible Spending Account (FSA) enables employees to cover certain eligible out-of-pocket costs. Certain medical, vision, and dental charges that are not covered by your health insurance plan are considered eligible expenses. You don’t have to pay taxes on your FSA funds if you use them to pay for qualified costs for you, your spouse, or your dependents.
What is the 2023 FSA contribution limit?
The IRS released the 2023 FSA contribution limit in October 2022. The FSA contribution limit increased by $200 from the previous year. This is a comparably big gain when compared to prior years. Employees will be able to make FSA contributions up to $3,050 in 2023. If your spouse has a separate FSA under a different employer’s plan, they are eligible to make contributions up to the maximum amount.
For health FSAs, the yearly contribution cap is in effect. You may use this kind of FSA to cover eligible out-of-pocket costs like:
- Medical costs, such as monthly period supplies and OTC medicines
- Copayments
- Carrier deductibles
- Medications on prescription
A health FSA and a health savings account (HSA) normally cannot be funded at the same time. Those who hold limited-purpose FSAs (LPFSAs) may additionally make contributions in 2023 of up to $3,050. If your employer permits it, you can still fund an HSA with this kind of FSA. The main purposes of an LPFSA are to cover dental and vision costs. However, when you’ve met your insurance deductible, your employer can give you the choice to utilize it to cover additional eligible healthcare costs.
By making financial contributions to an FSA, you can lower your taxable income. Let’s assume that you earn $50,000 each year. Your taxable income in 2023 would be $46,950 if you made the maximum FSA contribution that year. Depending on your state, any federal, payroll, or state taxes would be computed based on that sum.
Read Also: FAFSA 2023 Requirements: What You Need To Know
FSA Contribution limit 2023 compared to FSA Contribution limit 2022
The health FSA contribution limit will increase to $3,050 in 2023 from $2,850 in 2022. Compared to prior inflation-adjusted increases, this $200 rise is more. For instance, the FSA contribution limit increased by $100 between 2021 and 2022, going from $2750 to $2850.
Why does the annual FSA contribution limit rise? The FSA contribution limit is linked to inflation each year. Rising costs have caused inflation to reach new highs in 2022. This resulted in an increase in the FSA contribution cap from 2022 to 2023 that was more than typical.
The maximum FSA contributions for 2016 through 2023 are listed in the following table. As opposed to this year’s $200 hike, the annual limit normally increases by $50 or $100 each year.
Read Also: 2023 Child And Dependent Care Credit: Everything You Should Know