A flexible spending account (FSA) is a tax advantaged account that allows an employee to set aside earnings before taxes to pay for qualified medical expenses. The flex spending account allows you to pay for non-covered medical expenses such as deductibles and co-pays with pre-tax earnings.
For 2013, the IRS has issued a $2,500 limit on pretax employee contributions to health care flexible spending accounts (FSAs). The $2,500 limit is effective for plan years starting January 1, and not an employer’s fiscal tax year. Employers with fiscal year health care FSAs may keep higher reimbursement limits in effect through the end of their 2012-2013 plan year. The $2,500 limit also does not apply to employer non-elective contributions or to contributions to a cafeteria plan that are used to pay an employee’s share of health insurance coverage. Employers are still allowed to add supplementary employer paid contributions beyond the $2500.
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