Allowable Contributions to Health Flexible Spending Arrangements – Health Care Reform Part 2

ExactCPA Commentary.   This is a continuation,  from Part 1 located here
http://exactcpa.blogspot.com/2012/12/what-does-2013-mean-for-you-in-terms-of.html

Allowable Contributions to Health Flexible Spending

Arrangements – Health Care Reform Part 2

Yesterday we discussed the reporting requirements for large employers and their disclosure
of health care costs on employee W-2s. Today we will discuss new provisions surrounding
employee contribution limitations to Health Flexible Spending Arrangements. Health flexible
spending arrangements are intended to allow employees to contribute pre-tax funds to an account which can be used throughout the year for valid medical expenses such as co-pays, deductibles, and orthodontia.

Starting in 2013, taxpayers will now be limited to contributing $2,500 per employer, per
taxpayer, for their healthcare flexible spending account. This means that for taxpayers with more than one job, they would be able to contribute up to $2,500 to each employer’s plan (employers must be unrelated). For married couples, each spouse can contribute up to $2,500, even if they work for the same employer.

How is this different from previous tax years? Previously, there was no federally stipulated limit
on contributions that could be made to this type of plan. Many employers, however, limited
contributions to a maximum of $5,000. What is the downside to this type of account? Currently,
if all the money in the account is not used within the current tax year, the funds are forfeited.
Not fair you say? I agree. There has been discussion on whether or not to eliminate or modify
this provision, though no decision has been made yet. My hope is that some decision is made
regarding this provision as it will incentivize more people to participate. No one likes leaving
money on the table.

For more information on the new flexible spending account rules, refer to IRS Notice 2012-
40. Please consult your tax advisor regarding how the new provisions impact your specific tax
situation.