[Updated with 2023 limits for filings in 2024] Flexible Spending Accounts (FSA) have been around for a while now and many families use them as a tax advantaged way to save for health care and dependent care related costs.
However every year various limits associated with FSA accounts are reviewed by the IRS and adjusted based on statue or for cost of living adjustments (COLA). Limits are shown in the sections below, which summarizes key changes over the last few years.
If you use FSA or similar pre-tax accounts these are changes you should be aware of, particularly during open enrollment when you make your FSA allocations for the year ahead.
There are generally two varieties of Flexible Spending Accounts (FSA) accounts offered by employers to employees – one for qualified health/medical related costs and one for dependent care expenses. Employees can choose to have either or both.
Health Care Flexible Spending Accounts Overview
A health care FSA is an account where a certain amount of money is deducted from an employee’s paycheck (pre-tax) and placed in to an account that is used to pay for authorized medical expenses.
These expenses include doctor’s visits, prescription medications and eyeglasses. However funds in a Flexible Spending Account cannot be used to pay for over the counter (OTC) products, unless they are prescribed by a doctor. Some drugs, including insulin, will be exempt from this rule.
For doctor’s to prescribe a OTC drug, they will need to show cause that the drug is a necessity for the patient. If you and your spouse each have a Health Care FSA, you may each contribute up to the annual maximum (per table below), however you may not submit the same claims to both accounts, and you may not transfer funds between accounts.
Dependent Care Flexible Spending Account Overview
A dependent care FSA (DCFSA) is a pre-tax benefit account that employees can use for dependents below the age of 13 or those incapable of self-care and live with the account holder more than half the year.
DCFSA funds cover child dependent care services such as day care, preschool, qualified summer camps, and before or after school programs that are not employer sponsored.
DCFSA can also be used for elder care – when an elderly or incapable/disabled parent is considered a dependent and you are covering more than 50% of their maintenance costs.
The Dependent Care FSA limits are shown in the table below, based on filing status. Generally joint filers have double the limit of single or separate filers. The dependent care FSA maximum is set by statute and is not subject to inflation-related adjustments.
Note that the dependent care FSA maximums are the total household contribution based on filing status. So no matter how many kids you have, your maximum qualified contribution is limited to the maximum annual amount.
Furthermore, even if each spouse has access to a separate FSA through his or her employer, they cannot “double-dip” and are still subject to the mandated maximum limits.
Note however that you cannot use funds from a dependent care FSA to pay for eligible expenses and then also claim the child and dependent care tax credit (CDCTC) for those same expenses. No double-dipping!
FSA Annual Contribution Limits
The latest mandated FSA employee contribution limits on how much employees can contribute to these accounts is shown in the table below.
[2023 FSA updates] Health care FSA plans saw a $200 increase in annual limits. DCFSA saw no change to limits, which are set by statue and not linked to inflation.
The annual contributions to a FSA account are limited to the lesser of the mandated IRS limits or the employee’s or spouses total “earned income” for the year
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Employers though can also set their employees maximum contribution based on filing status and income, which may be below the IRS contribution limits. The minimum annual election for each FSA type is $100.
|Coverage Year||Max Health Care FSA Contribution (per person/employee)||Dependent Care FSA Max Election (married, family max)||Dependent Care FSA Max Election (filing separate)||Max Carryover (optional)|
In addition to what an employee can contribute, many employers can also provide additional Health FSA contributions. Even employees who contribute the maximum amount can still receive the additional (optional) employer contribution.
However, unlike a health FSA, the combined employer and employee contributions to a DCFSA cannot exceed the IRS limits noted in the table above.
This employer match is limited to $500 per year, whether or not the employee contributes to a FSA.
Tax Benefits of FSA Accounts
Biggest benefit of a FSA! Because FSAs are funded on a pre-tax basis from employee pay checks, no tax is paid on the contributions.
This means that the employee is essentially getting a discount (on medical expenses equal to their effective tax rate (30%+ for those with higher tax rates/incomes), often representing hundreds of dollars in savings over the course of the year that these funds can be used.
Also in today’s modern world, most FSA providers (who administer the program for your company) provide a debit card for or online claim portal making it very easy to get reimbursements for qualified expenses.
FSA Cautions – Use-it or Lose-It and Annual Carryover
However one big watch-out with these accounts is that any unused FSA funds at the end of the plan year are forfeited by the employee, known as the use-it or lose-it feature.
However employers can, and often do, optionally provide a two-and-a-half-month grace period to use any remaining FSA funds. So you essentially have 14.5 months to use any FSA funds.
During COVID-19 legislation, FSA plans were allowed to carryover unused balances for plan years 2020 and 2021 only. However this emergency provision is not available after the 2022 plan year.
Some employers also allow a carry-over (subject to IRS limit in table able), but that is not mandated. Either way this is why you must spend time planning your FSA contributions for the year ahead and only put away what you can reasonably expect to spend.
Employers providing Health FSA plans to their employees can elect either the annual carryover option or extended grace period option, but not both. Dependent Care FSA do not provide a carryover option.
Look at your past health care expenses as a guide and adjust for any changes to your family size and/or known health issues to determine how much to put into each type of FSA account.
If you do want more control on your health care accounts and want funds roll-over year to year consider a High Deductible Health Plan with HSA account. These have been been getting more popular over time due to the self managed, tax advantaged and no annual forfeiture features.
14 thoughts on “2023-2024 Health and Dependent Care Flexible Spending Accounts (FSA) Contribution Limits”
Does anyone know if DCRa reimburse the amount if I do not have ITIN . I have called my parents to take care of my kids from my birth country n my parents do not have ITIN no.
Keep in mind that the IRS allows an income tax credit of up to $3,000 for dependent care expenses if you have one dependent, or up to $6,000 if you have two or more dependents. The amount of the credit is based on your adjusted gross income and applies only to your federal income taxes. So, while the maximum allowed under a Dependent Care FSA is $5,000, you may be able to apply the Child and Dependent Care Tax Credit for amounts over that limit – up to your tax credit limit – depending on your tax situation. For more information on how the tax credit works, see IRS Form 2441, available at http://www.irs.gov, or consult a tax professional.
But you can’t do both, correct?
We are seeing the ramifications to this insane healthcare bill already. Have been waiting to put braces on my daughter on January 3rd (first appointment available after flex card was reactiviated). The bill for the braces is $3,800. NOw, I can only contribute $2500 for the flex card…and my husband’s company says he can’t do a Flex card for the remaining balance. That sucks! Once again, the middle guy gets gouged. We weren’t even going to put anything on the flex card to cover regular medical bills for the year. Last year in January, I had an emergency medical treatment where I was hospitalized twice in one month. My Out of Pocket was over $1,500. How in the heck is $2500 supposed to cover a family????????? Get a grip. This plan sucks and it will only get worse.
No, Brian. DC is staying the same. The max is and will be $5000 per family. Once the child hits the 13th birthday, this benefit falls away, per IRS regulations. The max is $5000 for a family on the MC side, but that is $2500, times two. One person can no longer sign up for $5000 and the other spouse sign up for nothing. If couples have been doing that in the past, they will have to change it during Open Season (mid-November to mid December later this year. OTC meds need a doctor’s prescription–still. We tried to get that changed back to the way it was (just sending in the receipt and/or coping the box face when the receipt was not descriptive enough to understand).
This was all not changed to improve health care. It is all part of the Congress trying to balance the budget and reduce the $16T in debt on the backs of workers. It will be increased after a yearly examination of the inflation level, as is done each year for the TSP limit for federal employees.
With the two-year pay freeze and these changes, we, as both federal employees, are looking at a loss between a quarter and a half million over the rest of our lives.
Those who become feds on or after 12/31/12 will have their lifetime salaries reduced at the six-figure level due to the new retirement deductions coming. I’m glad my wife finally listened to me and got a federal job in 2009.
There seems to be a large assumption that the spouse has the same opportunity to have an FSA. My FSA is for my entire family. My husband does not have this as an option. So this change in the law puts us at a huge disadvantage right at a time when I will be having a surgery at the first of the year that my insurance will not cover, but is medically necessary. :-(
This really sucks! We are paying for health care for those that don’t lift a finger and go to work, again on the backs of the middle class, nice call democrats! I thought you were for the middle class? think again, LOOSERS!
Actually you were already paying for health services provided to uninsured citizens, but you didn’t care becasue it wasn’t an issue until Republicans started to attack the Affordable Health Caer Act. Now, there is a madate (which the Republicans fought all the way to the US Supreme Court) that requires all working people above the poverty line to get health insurance and be accountable for their own health fees. There are exemptions for the extremely poor. This should lower the cost of insurance for all citizens except the insurance companies will probably find a way to raise the premium costs and gobble up any savings. The Democrats and the President have done you a favor, but there are some very wealthy people who continue to lie about provisoons of the plan because health costs have been their cash cow and they don’t want affordable health care to diminish their profits.
Requiring people to buy insurance (increase demand) will cause the price (premium) to go up if supply stays the same. This is simple supply and demand. We asked for health care reform so it will be more affordable for people, but instead, the government reformed the health care to make sure everyone has to buy insurance. Look, the people who asked for health care reform are the ones who want to buy medical insurance and are very concerned about not able to afford it one day as the premium keeps going up faster than normal inflation. Now there is nothing in the bill guanrantee the premium will be lower, but we must buy health insurance. How is that addressing our concerns?
In addition to not addressing the real problem, there are many provisions in the bill that are just outright robbing us of our liberty, but I don’t think you care or will believe any of them so no point for me to discuss them here.
Bondy: “I don’t think you care or will believe any of them so no point for me to discuss them here.” I think that is unnecessary. We all care or we wouldn’t be posting on here. I do have to add that the supply and demand for insurance is different than traditional supply and demand. The more insurance people purchase the better off the insurance company is. I agree though that there is no guarantee that the insurance company will pass on that savings to their customers.
Healthcare has been dramatically increasing before this bill was ever discussed. It has a lot more to do with the fact that people are living longer, technology advancing and the fact that many people don’t have insurance and use the hospitals as a way to get medical care. Honestly, it is much cheaper for people to die than to use advanced technology to save them. I’m not saying we shouldn’t try to save them, but we have to remember that all of the wonderful medical advances we have seen in the last thirty years cost a great deal of money. I don’t know what the answer is, but I do know the system is broke. We have to do something. I have friends in other countries who have such a hard time understanding why this is such a problem for us. No system is perfect, but there are definately other systems out there that are better.
Is the Dependant Care limit changing?
Yep, Nancy said pass the bill and we could see what is in it. How in the world could they even imagine that it would reduce health care costs? They probably don’t consider the extra taxes paid because of the limit on FSA’s to be reflected in reducing of costs. People who have some medical condtions will have to pay more after tax dollars for their care. Welcome to the USSA!!
It’s going to cause more taxable income for employees. I have already seen my premuims and co-pays go up while my coverage go down. The Democrats have put health care back 10 years instead of moving forward on the road to real reform.
It isn’t the democrats. The issue as that nothing has been put into place to make health insurance companies & hospitals have reasonable and understandable costs. There is no reason a test should be twice as expensive from one hospital to the other. The GOP refuse to even consider to reign in health insurance companies or hospitals because business matters more than people. The ACA has flaws, which can be corrected, but until we can reign in the immense profit involved in healthcare the prices will continue to rise, because they can. Studies from non partisan sources have shown if the ACA is repealed, costs will still continue to rise & taxpayers will once again foot. the blame lies with the GOPS reluctance to do anything that is viewed as unfavorable to businesses, as they are more important than people