IRS Flexible Spending Account Limits

Flexible Spending Accounts (FSAs) are additional benefit plans offered by employers during the open enrollment period. The employee sets a contribution amount at the beginning of the plan year. The primary benefit of an FSA is that the amount is deducted over the course of the year through payroll deductions. This allows the employee to realize a tax savings while budgeting for medical expenses. Flexible spending accounts adhere to a set of guidelines established by the IRS.

About Flexible Spending Accounts

• Flexible spending accounts are employer-based benefit plans set up under section 125 of the Internal Revenue Code. Individuals may contribute to the account by signing up during their employer's open enrollment period. The dollars contributed are pre-tax funds, which give the employee tax savings on year-end returns. The dollars may be used for medical expenses not covered by insurance, such as co-pays, deductibles and medical devices. Monies contributed to the account must be used during the specified plan year as they do not roll over to the next year.

Annual Limits

• There is no cap set on the amount of money that can be contributed into an FSA. However, many employers will limit their employees to a maximum contribution amount annually. This is not an IRS-mandated threshold. Flexible spending accounts are "use it or lose it" accounts so many companies choose to set contribution limits to protect their employees.

Limits for Dependents

• Flexible spending accounts are available for dependent care as well. The type of care can be a day care, afterschool care or adult living care, depending on the situation. Only individuals who can be claimed as dependents on your taxes fall under this provision. In order to qualify, you must spend over $500 per year in dependent care expenses. The IRS sets the maximum contribution to a dependent care flexible spending account at $5,000 as of 2011.

Upcoming Changes to Flexible Spending Accounts

• The Health Care Bill enacted in 2010 brings some changes to flexible spending accounts. The biggest change is that over-the-counter medications will no longer be covered without a doctor's prescription. This includes aspirin and other pain relievers as well as cold medicines. Diabetic supplies will continue to be covered. This may affect the amount of money participants will put aside for the account. Starting in 2013, the government will cap the contribution amount at $2,500 per year.