Employers around the country are waking up to a serious and unexpected problem with their health care flexible spending accounts. The health reform law enacted several years ago quietly limited these popular “FSA” benefits to $2,500 per year, effective January 1, 2013. But the express terms of the law conflict with the explanation provided by Congress, and many employers are scratching their heads trying to figure out when plans must be changed to meet the requirements of the new law, and what amendment language must say.
Here’s the problem: The law says that FSAs are not “qualified” under tax law unless the plan provides that an employee’s salary deferral to fund the FSA does not exceed $2,500 “for any taxable year” beginning after December 31, 2012. “Qualified” status is important because if an FSA is not qualified, benefits payable under the plan become taxable income.
