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Fed’s New Cap on Flex Spending Accounts

June 1st, 2013 – A little known cap on Flex Spending Accounts (FSA’s) is expected to impact older and chronically ill individuals the most. Under the Affordable Care Act, commonly known as ObamaCare, there is a new $2,500 annual cap on individual FSA contributions.

Flex Spending Accounts are part of some companies’ employee benefits package. Contributions are made on a pre-tax basis directly from employees’ paychecks and are not subject to federal income and payroll taxes. The money from FSA’s can then be used to pay for qualified medical expenses such as deductibles, co-insurance, co-payments, etc.

Before the Affordable Care Act, there were no limits for workers’ FSA contributions under federal tax law. Employers set their own annual FSA contribution limits, often at $5,000 or more.

According to a new study, this will impact 35% of people with Flex Spending Accounts and nearly two-thirds of these households included individuals with three or more chronic health conditions.

Critics call this “an implicit “tax” on wage income that now won’t be diverted pretax into FSA’s is expected to raise $1.5 billion this year, and a total of $13 billion between 2013 and 2019, according to the Joint Committee on Taxation.”

It appears that there is quite a bit of support in Washington to remove this cap on FSA’s, but time will tell if they can break through the Washington gridlock and get the job done.

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