FSA Limits Reduced for 2013

I mentioned this in passing when I recently wrote about open enrollment season, but I wanted to remind you that healthcare flexible spending account (FSA) contribution limits have been capped at $2500 for 2013. In most cases, this will be a reduction vs. what’s been possible in the past.
This change actually traces back to the Patient Protection and Affordable Care Act (i.e., “Obamacare”). Until now, FSA limits have been determined by employers and many (if not most) families have been able to set aside upwards of $5000/year. Depending on your tax bracket, that was a huge benefit.
Of course, you had to be careful with how much you set aside — especially with the lost of coverage for OTC items in 2011 — due to the horrible use-it-or-lose-it nature of these accounts. But if you were careful, you could save a ton on taxes. That’s still possible, of course, though the magnitude of those potential savings has been reduced.
While the IRS has solicited comments on the use-it-or-lose-it nature of FSAs — they’re considering dropping that requirement in light of the new $2500 limit — they haven’t made any changes thus far. If I hear anything further about this, you’ll be the first to know.
As for us, we left FSAs behind several years ago when we switched to a high-deductible health plan and associated HSA. With no use-it-or-lose-it clause and the ability to treat it like an extra retirement account, what’s not to love?
What about you? Have you been negatively impacted by these changes?
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Modified on November 19th, 2012 - 4 Comments
Filed under: Insurance, Taxes
About the author: Nickel is the founder and editor-in-chief of this site. He's a thirty-something family man who has been writing about personal finance since 2005, and guess what? He's on Twitter!
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November 12th, 2012 at 6:06 pm
I know we’re talking about Heath FSAs,but just to be clear, the Health FSA is being reduced to $2500/yr. The Dependent Care FSA is still $5000.
November 12th, 2012 at 7:24 pm
Where have you read that the IRS is considering removing the “use it or lose it”?
November 13th, 2012 at 3:24 pm
I am getting burned by this, we have contributed closer to the $5k amount for the past few years, in 2013 the limit of $2500 will make medical expenses a bit more expensive.
November 15th, 2012 at 3:40 pm
The FSA reduction from $5000 to $2500 amounts to a $500-$600 Tax increase as a result of ACA / Obama-care. So much for no tax increases for the middle class, Mr. President!