Understanding Flex Spending Account Limits and Rules

Flex spending accounts can be a great way to save money on out-of-pocket medical expenses, but understanding the limits and rules is crucial to avoid any potential penalties or audits.

You can contribute up to $2,750 per year to a health flexible spending account (FSA) to cover qualified expenses.

FSAs are subject to annual contribution limits, which vary depending on the type of account and your employer's plan.

Each year, you must use or lose any unspent FSA funds, as FSAs are use-it-or-lose-it accounts.

The IRS requires employers to provide a summary of the plan's terms and conditions to employees, including the contribution limits and rules.

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Contribution Limits are set by the IRS, and they can be a bit confusing. The annual contribution limit for health care FSAs is $3,200 in 2024, and it's the same for spouses filing jointly, with each spouse able to elect up to the health care max in the year.

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If you're switching jobs, your contribution limit for health care FSAs doesn't reset; you can contribute up to the annual limit through your new employer. For example, if you contributed $3,200 to a health care FSA with your previous employer, you can also contribute up to $3,200 with your new employer.

The contribution limits for health care and limited purpose flexible spending accounts are as follows:

An employee's FSA contribution limit does reset when they join another company, but the good news is that they can contribute to their new employer's FSA plan regardless of how much they contributed through the previous employer.

In fact, if an employee contributed $3,200 to a health care FSA with a previous employer, they may have reached their annual limit, but they can still contribute up to $3,200 with the new employer.

This means that employees can start fresh with their new employer's FSA plan and contribute up to the annual limit, which can be a great benefit for those who need to pay for health care or dependent care expenses.

For another approach, see: Dependent Care Flex Spending Account

Here's a breakdown of what happens when an employee joins a new company:

It's worth noting that employees can't change their FSA contribution amount during the year unless they have a qualified family status change, such as marriage, divorce, or the birth of a baby.

In 2024, the maximum annual contribution to a health care FSA is $3,200, and each spouse filing jointly can elect up to this amount, making the household total $6,400.

To understand the employer contribution limits, let's look at an example. If an employer chooses to match employee contributions, they can match up to a maximum of $3,200 in 2024.

Employer contribution amounts are set during company plan enrollment and cannot be changed until the plan's year-end.

Here's a breakdown of how employer contributions can work:

Remember, the maximum annual contribution to a health care FSA is $3,200, and employer contributions can match up to this amount in 2024.

If you're considering contributing to a Health FSA, you should know that both spouses can contribute to their own Health FSA, as long as their employers offer it.

In 2022, the household maximum for Health FSA contributions was $5,700, with each spouse able to contribute up to $2,850.

You can't both submit the same expenses for reimbursement, which is known as "double-dipping."

For spouses filing jointly, each spouse can elect up to the health care maximum in the year, which in 2024 would be $3,200 + $3,200 = $6,400 household total.

Employers can also choose to contribute to employees' health FSAs and match up to a maximum of $3,200 in 2024.

Here's a breakdown of how employer contributions can work:

You can set aside pre-tax funds to reimburse work-related, day care expenses for eligible dependents through a dependent care FSA.

The maximum annual contribution limit for both employer and employee is $5,000 for calendar year 2024, and any amount exceeding that is taxable income.

You can use a dependent care FSA for work-related daycare for dependents up to the age of 13, nursery school, or adult daycare service of an eligible tax dependent.

Funds contributed to a dependent care FSA must be used within the same plan year for Eligible Dependent Care Expenses.

A dependent care FSA can be used for child day care and elder care expenses.

You can enroll in a dependent care FSA through My HealthEquity, regardless of which health plan you participate in.

The total combined contribution for DCFSAs cannot exceed $2,500 for each spouse when filing separately.

The dependent care FSA contribution maximum for calendar year 2025 is $5,000 per household annually.

You can make elections to participate in the dependent care FSA during the annual benefits open enrollment period.

Elections cannot be changed unless there is a qualifying life event, such as marriage, divorce, birth of a child, adoption, change in day care cost, etc.

The minimum annual contribution for a dependent care FSA is $120.

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