What Are the Maximum FSA Contribution Limits?

A Flexible Spending Account (FSA) allows individuals to set aside pre-tax money from their paychecks for qualified out-of-pocket expenses. This reduces taxable income, as funds contributed are not subject to federal income, Social Security, or Medicare taxes. FSAs help participants manage anticipated healthcare or dependent care costs throughout the year.

Health Care Flexible Spending Account Limits

For the 2023 plan year, the maximum amount an individual can contribute to a Health Care Flexible Spending Account (HCFSA) through voluntary salary reduction is $3,050. This limit applies per employee. Employers have the discretion to set a lower maximum contribution limit for their specific HCFSA plans.

HCFSA funds can be used for a broad range of qualified medical expenses for the employee, their spouse, and eligible dependents. Common eligible expenses include copayments, deductibles, prescription medications, and a variety of over-the-counter medical products. Dental and vision care expenses, such as cleanings, braces, eyeglasses, and contact lenses, also typically qualify for reimbursement.

Dependent Care Flexible Spending Account Limits

The maximum contribution limit for a Dependent Care Flexible Spending Account (DCFSA) for the 2023 plan year is $5,000 per household. For married individuals who file separate tax returns, this limit is reduced to $2,500 per person.

DCFSA funds are specifically intended to cover expenses for care services that enable the account holder, and their spouse if applicable, to work or look for work. Eligible expenses primarily include care for a qualifying dependent child under the age of 13. This encompasses costs such as daycare, nursery school, preschool, before and after-school programs, and summer day camps. Funds can also be used for the care of a spouse or other dependent who is physically or mentally incapable of self-care and lives in the account holder’s home.

Key Rules for Managing Your FSA

A fundamental principle governing FSAs is the “use it or lose it” rule, which stipulates that funds not used by the end of the plan year are generally forfeited. Employers may offer one of two exceptions, though they cannot offer both.

One common exception is a grace period, which allows account holders an additional 2.5 months after the plan year ends to incur eligible expenses. For example, for a plan year ending on December 31, a grace period would extend the spending deadline to March 15 of the following year. Any funds remaining after this extended period would still be forfeited. Another option employers may provide is a carryover provision, permitting a limited amount of unused HCFSA funds to roll over into the next plan year. For the 2023 plan year, the maximum carryover amount for HCFSAs is $610, and this carried-over amount does not count against the new year’s contribution limit. Dependent Care FSAs typically do not offer a carryover, but may include a grace period.

Proper substantiation of expenses is a critical requirement for all FSA reimbursements. The IRS mandates that all claims must be supported by third-party documentation, such as an Explanation of Benefits (EOB) from an insurance company or an itemized receipt from a service provider. This documentation must clearly detail the date of service, a description of the service or item purchased, the dollar amount, and the name of the provider or store. Practices such as allowing employees to self-substantiate expenses, sampling claims, or not requiring substantiation below a certain dollar amount are not permissible under IRS rules. If reimbursements are not properly substantiated, those amounts may be considered taxable income to the employee.