by admin | Oct 14, 2025 | Blog
The IRS announced the 2026 contribution limits for all Flexible Spending Account (FSA) plans. Below is an overview of the limit increases across all the types of FSAs.
Health Flexible Spending Account
The Health FSA, which provides employees the ability to set aside money on a pre-tax basis to pay for eligible medical, dental, and vision expenses will have an increase to its contribution maximum from $3,300 to $3,400 for 2026. The new contribution limit will also apply to the Limited Purpose FSA which reimburses eligible dental and vision expenses. Limited Purpose FSA limits will also increase from $3,300 to $3,400 for 2026.
Carryover Limit
The FSA Carryover limit provides employers the option to transfer a maximum amount of remaining FSA balances at a plan year’s end to carryover for use during the next plan year. This is available with Healthcare and Limited Purpose FSAs only. The carryover limits for this account will increase from $660 to $680 for 2026.
Dependent Care Flexible Spending Account
The Dependent Care FSA allows employees to set aside pre-tax dollars to pay for eligible dependent care expenses,
such as daycare, preschool, and before- or after-school programs. For 2026, the contribution limit will increase from
$5,000 to $7,500 for single taxpayers or married couples filing jointly. For married individuals filing separately, the limit
will increase from $2,500 to $3,750. This change was enacted through legislation passed in July 2025 and is not subject
to annual inflation adjustments.
Commuter Benefits
Commuter Benefits help employees pay for certain parking, mass transit, and/or vanpooling expenses with pre-tax dollars. The contribution limits for this account will increase from $325 to $340 for 2026.
Adoption Assistance
The Adoption Assistance FSA helps employees pay eligible adoption expenses such as agency fees and court costs by contributing to the account with pre-tax money from their paycheck. The contribution limits for this account will increase from $17,280 to $17,670 for 2026.
For more information about this major change, read our latest handout.
by admin | Oct 9, 2025 | Blog
When managing a health Flexible Spending Account (FSA) under a cafeteria plan, employers often face questions about reimbursement eligibility—especially when employees incur medical expenses before officially enrolling. A common scenario involves new hires who want to submit claims for services received prior to their start date. So, can a health FSA reimburse expenses incurred before a participant’s enrollment?
Short Answer: No.
According to IRS regulations, a participant must be actively enrolled in the health FSA at the time the medical service is provided for the expense to qualify for reimbursement. This rule applies regardless of when the participant is billed or pays for the service.
Key IRS Guidelines on Health FSA Reimbursements
- Coverage Timing Matters:
Expenses must be incurred while the employee is covered under the health FSA. Coverage begins on the enrollment date—not retroactively.
- Date of Service Is Key:
The IRS defines the “incurred date” as the date the medical care is provided, not when payment is made or billed.
- No Retroactive Claims:
Services received before enrollment (even within the same plan year) are not eligible for reimbursement.
Example Scenario
Let’s say your company has a calendar-year cafeteria plan. An employee is hired in June and enrolls in the health FSA at that time. They later request reimbursement for dental services received in March. Since the services occurred before their enrollment, those expenses cannot be reimbursed under IRS rules.
What About DCAPs (Dependent Care Assistance Programs)?
The same rules apply. DCAPs also require that dependent care services be provided while the participant is enrolled in the plan. Claims for services before enrollment are not eligible.
Best Practices for Employers
- Educate Employees Early:
Include FSA eligibility and reimbursement rules in onboarding materials.
- Review Plan Documents:
Ensure your plan clearly outlines coverage start dates and reimbursement criteria.
- Encourage Timely Enrollment:
Prompt enrollment helps employees maximize their benefits and avoid ineligible claims.
Health FSAs and DCAPs are valuable benefits, but they come with strict IRS rules. Employers must ensure that only expenses incurred during active coverage are reimbursed. Clear communication and proper documentation can help avoid confusion and ensure compliance.
by admin | Oct 2, 2025 | Blog
As your company prepares to introduce a Health Flexible Spending Account (FSA), it’s essential to understand the legal documentation requirements that come with it. One key requirement under the Employee Retirement Income Security Act (ERISA) is the Summary Plan Description (SPD)—a document that outlines the plan’s terms and participants’ rights.
Why Is an SPD Required for a Health FSA?
A Health FSA is considered a group health plan under ERISA, meaning it must comply with SPD requirements regardless of your company’s size. There are no exemptions for small employers when it comes to welfare benefit plans.
What Must Be Included in the SPD?
The SPD must be written in a clear, understandable format and include:
- Plan Identification & Eligibility: Who can participate and when.
- Plan Benefits: What expenses are covered and under what conditions.
- Loss or Denial of Benefits: Circumstances that may affect reimbursement.
- Funding Sources: Whether contributions come from the employer, employee, or both.
- Claims Procedures: How to file claims and appeal denied claims.
- ERISA Rights Statement: A summary of participants’ legal rights.
- COBRA Information: If applicable, details on continuation coverage.
- QMCSO Compliance: Information on coverage for children under court orders.
Additional Health FSA-Specific Details
To help employees make informed decisions, your SPD should also explain:
- Contribution Limits: Minimum and maximum annual amounts.
- Election Change Restrictions: Rules around midyear changes.
- Use-It-Or-Lose-It Rule: What happens to unused funds.
- Eligible Expenses: What qualifies for reimbursement.
- Covered Individuals: Whose expenses can be reimbursed.
- Debit Card Program: If offered, how it works.
Best Practices for Employers
Many companies choose to have legal counsel draft or review the SPD to ensure full compliance. It’s also common to combine the SPD with documentation for related benefits like the cafeteria plan or Dependent Care Assistance Program (DCAP)—even though those are not subject to ERISA.
Finally, remember that ERISA also governs how and when SPDs must be distributed and updated. Staying compliant not only protects your company but also ensures transparency and trust with your employees.
Source: Thomson Reuters
by admin | Aug 21, 2025 | Blog
Qualified transportation fringe benefits are a popular way for employers to support commuting costs while offering tax advantages. But what happens to unused balances when an employee leaves the company? If you’re considering implementing a qualified transportation plan, it’s crucial to understand the IRS rules governing these benefits—especially regarding terminations.
Key IRS Rules for Transportation Plans
Two primary IRS rules shape how balances are treated upon termination:
- No-Former-Employees Rule
Qualified transportation plans cannot reimburse expenses incurred after employment ends. This means terminated employees are ineligible for post-employment transit reimbursements.
- No-Refunds Rule
Unused balances—whether from employer contributions or pre-tax salary reductions—cannot be refunded to the employee. These funds must remain within the plan.
What Can Terminated Employees Do?
Employees who leave the company can still submit reimbursement requests for qualified transportation expenses incurred during employment, as long as they do so within the plan’s run-out period—a grace period for submitting claims after coverage ends.
However, if they:
- Don’t have enough eligible expenses,
- Miss the run-out deadline, or
- Have excess contributions,
…those unused funds are forfeited.
Minimizing Forfeiture Risk Through Plan Design
Employers can reduce forfeiture risk by designing the plan thoughtfully. For example:
- Limit monthly contributions to the cost of a transit pass.
- Send regular reminders to employees about their balances and deadlines.
- Allow election changes to avoid over-contributing.
What Happens to Forfeited Funds?
Your plan document should clearly state how forfeited balances are handled. Options include:
- Retaining funds to cover plan administration costs.
- Redistributing funds to other participants (within IRS limits).
- Complying with state escheat laws, especially if the plan is “funded” (i.e., money held in separate accounts).
Qualified transportation plans offer great benefits, but they come with strict IRS rules. By understanding the limitations and designing your plan carefully, you can support your employees while minimizing forfeitures and compliance risks.
by admin | May 29, 2025 | Blog
As healthcare costs continue to rise, many large employers are reevaluating their group health plan offerings. A common cost-saving strategy is to exclude spousal coverage. But does this decision expose employers to penalties under the Affordable Care Act (ACA)? Let’s break down what the 2025 ACA employer shared responsibility rules say about spousal coverage, and how FSAs, HRAs, and HSAs fit into the compliance picture.
ACA Employer Shared Responsibility: The Basics
Under the ACA, Applicable Large Employers (ALEs)—those with 50 or more full-time employees—must offer minimum essential coverage to at least 95% of their full-time employees and their dependents to avoid penalties
- Dependents are defined as biological and adopted children under age 26.
- Spouses are not considered dependents under ACA rules, so employers are not required to offer coverage to spouses to avoid penalties.
Spousal Coverage and ACA Penalties
If an employer excludes spouses from its health plan:
- No penalty applies, even if the spouse obtains subsidized coverage through the Exchange.
- Penalties are only triggered if a full-time employee receives a premium tax credit due to the employer failing to offer affordable, minimum-value coverage.
2025 ACA Penalty Amounts
- 4980H(a) Penalty: $2,900 per full-time employee (minus the first 30), if coverage is not offered to 95% of full-time employees and their dependents.
- 4980H(b) Penalty: $4,350 per full-time employee who receives subsidized Exchange coverage because the offered coverage was unaffordable or did not meet minimum value.
How FSAs, HRAs, and HSAs Impact ACA Compliance
While FSAs (Flexible Spending Accounts), HRAs (Health Reimbursement Arrangements), and HSAs (Health Savings Accounts) are not substitutes for minimum essential coverage, they can play a supporting role in ACA compliance:
1. FSAs (Flexible Spending Accounts)
- FSAs are employee-funded accounts used for out-of-pocket medical expenses.
- They do not count as minimum essential coverage but can help reduce employees’ healthcare costs.
- Employers offering limited-purpose FSAs alongside HDHPs (High Deductible Health Plans) must ensure the HDHP meets ACA affordability and minimum value standards.
2. HRAs (Health Reimbursement Arrangements)
- ICHRA (Individual Coverage HRA) can be used by employers to reimburse employees for individual market premiums.
- If structured properly, an ICHRA can satisfy ACA employer mandate requirements, provided the reimbursement amount is sufficient to make individual coverage affordable.
3. HSAs (Health Savings Accounts)
- HSAs are paired with HDHPs and are employee-owned.
- While HSAs themselves don’t satisfy ACA requirements, the HDHP must meet minimum value and affordability standards.
- Employer contributions to HSAs can help reduce the net cost of coverage, improving affordability calculations.
Excluding spouses from your group health plan does not violate ACA rules and will not result in employer shared responsibility penalties, even if those spouses seek subsidized coverage elsewhere. However, employers must ensure that full-time employees and their dependent children are offered affordable, minimum-value coverage.
FSAs, HRAs, and HSAs can enhance your benefits strategy and support ACA compliance, but they must be used in conjunction with a compliant health plan—not as a replacement.
Source: Thomson Reuters
