Earlier this year, the Internal Revenue Service issued Notice 2012-40, which provides guidance on the changes made to health flexible spending arrangements under the Patient Protection and Affordable Care Act. Effective January 1, 2013, PPACA limits health FSA salary reduction contributions to $2,500. The $2,500 limit will be indexed for cost-of-living adjustments for plan years beginning after December 31, 2013. Historically, there has been no limit on the amount of salary reduction contributions that employees may elect under health FSA plans, subject to employer-imposed plan limits.
Notably, Notice 2012-40 clarifies that the limit does not apply for plan years beginning before Jan. 1, 2013. Thus, a health FSA plan run on a noncalendar-year basis will not be required to comply with the $2,500 limit until the first plan year beginning on or after January 1, 2013. In addition, for health FSA plans providing a grace period – which may be up to 21/2 months after the end of the plan year – unused salary reduction contributions attributable to plan years beginning in 2012 will not count against the $2,500 limit for the 2013 plan year. Other important highlights include:
