In 2018, employees will be able to put an extra 50 dollars into their flexible savings account (health FSA). The new FSA total contribution will now be $2,650 rather than $2,600, which was the limit in 2017. This change applies to limited purpose FSAs as well, such as those limited to dental and/or vision services.
The Internal Revenue Service (IRS) made this announcement Oct. 19, 2017, just in time for open enrollment season. The purpose for this adjustment is the 2.2 percent cost of living increase over the past 12 months.
FSAs are great for tax savings as they let allow users to set aside money pre-tax in order to cover anticipated health care expenses. There are plenty of pros and cons to health care flexible savings accounts, and people generally love them or hate them.
- Tax savings. FSA funds are deducted at payroll, before taxes, meaning your taxable income is lowered.
- Greater take-home income. Since your taxable income is lower, you ultimately take home more money over the course of a year.
- Medical savings. Health insurance does not cover every medical expense, such as over-the-counter medication, travel vaccines or preventative tests. These services can be funded with an FSA.
- Immediacy of funds. At the beginning of the year, you can pledge funds to your FSA, and that amount is available immediately. You still continue to have money withdrawn from each paycheck.
- Expiration dates. In most cases, the money in you FSA needs to be used by the end of the year. In few cases, funds can roll over.
- Account limits. Each employee is limited to saving $2,650 per year.
- Potential loss of funds. FSAs are tied to your benefit plan with your employer, meaning if you lose your job, you can lose your funds.
- No tax write-offs. If you use your FSA to reimburse a medical expense, you cannot then write off the medical expense at tax time.