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 | Sep 16, 2025 | Blog
When a former employee receiving COBRA coverage is called to active military duty, employers may wonder how COBRA and USERRA apply. Here’s a quick breakdown of your obligations.
What is COBRA?
COBRA (Consolidated Omnibus Budget Reconciliation Act) allows employees and their families to continue group health coverage for a limited time after job loss or other qualifying events.
What is USERRA?
USERRA (Uniformed Services Employment and Reemployment Rights Act) protects the job and benefit rights of employees who leave work for military service. It includes health coverage continuation—but only for active employees, not those already separated and on COBRA.
Does USERRA Apply in This Case?
No. If the individual is no longer employed and is receiving COBRA, USERRA does not provide additional rights.
Can COBRA Be Terminated Due to TRICARE?
This is a gray area:
- IRS rules suggest COBRA may end if the person gains other group coverage (like TRICARE).
- DOL guidance says COBRA should not be terminated just because TRICARE is in place.
What Should Employers Do?
- Don’t automatically terminate COBRA due to TRICARE.
- Check with your insurer or stop-loss carrier to avoid coverage gaps.
- Document your decisions and stay updated on federal guidance.
USERRA doesn’t apply to former employees, but COBRA coverage should generally continue—even if TRICARE is now active. When unsure, consult legal or benefits experts to stay compliant.
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.
