Health FSA Limit Increases for 2024
November 13, 2023
On Nov. 9, 2023, the IRS released Revenue Procedure 2023-34 (Rev. Proc. 23-34), which includes the inflation-adjusted limit for 2024 on employee salary reduction contributions to health flexible spending accounts (FSAs). For plan years beginning in 2024, the adjusted dollar limit on employees’ pre-tax contributions to health FSAs increases to $3,200. This is a $150 increase from the 2023 health FSA limit of $3,050.
Employers that allow carryovers should be aware that the 2024 carryover limit will increase to $640 from $610.
Employers should confirm that their health FSA contribution limit is included in the plan’s documents and communicated to employees at enrollment time. Given the late arrival of the IRS release, we recognize that many employers with calendar-year plans have already closed their open enrollment period, which means that many employees have already made their elections for 2024. For those employers who have already closed their open enrollment, we recommend that you communicate the increased maximum amount to your employees and allow them time to change their 2024 FSA election. The new election will have to be made prior to the beginning of next year. If feasible, you may consider targeting only those employees who have made the maximum election under the 2023 limit. In other words, only ask those who thought they were making the maximum election to see if they want to increase their contributions to the true 2024 maximum.
We understand that it might not be administratively practical to communicate this increase and re-open the FSA election period. Because employers do not have to allow the maximum FSA contribution, an employer may choose to cap their FSA plan at the 2023 limits and not apply the increase.
Additional Items to Note
- The health FSA limit applies on an employee-by-employee basis. Each employee may only elect up to $3,200 in salary reductions in 2024, regardless of whether they have family members who benefit from the funds in that FSA. However, each family member eligible to participate in their own health FSA has a separate limit. For example, a married couple who have their own health FSAs can both make salary reductions of up to $3,200 for 2024, subject to any lower employer limits.
- Qualified transportation fringe benefits are subject to monthly limits instead of annual contribution limits. The 2024 monthly limit increases to $315/month (from $300/month in 2023) for both qualified parking and transit passes.
- Annual dependent care reimbursement limits are statutorily set and are not subject to inflationary adjustments. Thus, there is not an increase in 2024. The DCAP limits remain at $5,000 for single taxpayers and married couples filing jointly, or $2,500 for married people filing separately.
If you have any questions about how to communicate the new FSA limits or anything else related to your enrollment process, please contact your Cottingham & Butler team member today.