What Are the FSA Contribution Limits for 2024?

Flexible Spending Accounts (FSAs) are employer-sponsored benefit plans that allow employees to set aside pre-tax money for specific out-of-pocket expenses. This arrangement reduces an individual’s taxable income, leading to tax savings on federal income, Medicare, and Social Security taxes. These accounts serve as a valuable tool for managing anticipated expenses throughout the year.

Understanding FSA Limits for 2024

The Internal Revenue Service (IRS) sets annual contribution limits for Flexible Spending Accounts, which are adjusted for inflation. For the 2024 plan year, the maximum amount an employee can contribute to a Health Flexible Spending Account (Health FSA) is $3,200 per year. This limit applies to individual contributions through payroll deductions.

For Dependent Care Flexible Spending Accounts (DCFSAs), the maximum contribution limit for 2024 remains $5,000 per household. If married and filing separately, the limit is $2,500 per person. While the IRS establishes these maximums, employers have the discretion to impose lower contribution limits for their specific FSA plans. Employees should confirm the exact limits with their employer.

Types of FSAs and Eligible Expenses

Two primary types of Flexible Spending Accounts exist: Health FSAs and Dependent Care FSAs. Each type is designed to cover different categories of expenses.

Health FSAs are intended for qualified medical expenses for the employee, spouse, and dependents. This includes a wide range of costs such as medical, dental, and vision care, deductibles, co-payments, and prescription medications. These accounts help individuals manage healthcare costs by using pre-tax dollars.

Dependent Care FSAs are specifically for expenses related to the care of qualifying dependents. The primary purpose of these expenses must be to enable the account holder, and spouse if applicable, to work or look for work. Eligible expenses commonly include childcare for children under the age of 13, pre-school, and after-school care. Care for an incapacitated spouse or adult dependent who is unable to care for themselves also qualifies.

Managing Your FSA Funds

A distinguishing characteristic of Flexible Spending Accounts is the “use-it-or-lose-it” rule, which dictates that funds not used by the end of the plan year are forfeited. Careful planning of contribution amounts is essential to avoid losing unspent funds.

However, employers may offer exceptions to this rule to provide more flexibility. One common exception is a grace period, which allows employees additional time after the plan year ends to incur new eligible expenses against the previous year’s funds. Another exception is a carryover option, which permits a specific amount of unused funds to roll over into the next plan year. For plan years beginning in 2024, the maximum carryover amount allowed by the IRS is $640.

It is important to note that employers typically offer either a grace period or a carryover, but not both, and some plans may offer neither. The availability of these options, and any specific limits imposed, depends entirely on the employer’s plan design. Employees should consult their plan documents and employer to understand the rules governing their FSA funds and how to maximize their benefits.