On Section 125 Cafeteria Plans
By Children’s Home Society of Florida Foundation
In Notice 2012-40; 2012-25 IRB 1 (29 May 2012), the IRS issued guidance on the changes required in 2013 for Sec. 125 Cafeteria Plans.
Section 125 Plans
Many companies have created healthcare flexible spending accounts under Section 125. For 2013, the salary reduction contributions are limited to $2,500. The notice indicates that this limit will be adjusted for inflation in 2014 and later years. If contributions greater than $2,500 are made to the account, the excess funds will not subject the employee to penalties if the funds are distributed as taxable income in the taxable year in which the cafeteria plan year ends. The $2,500 limit does not apply to non-elective plans. Many of these plans are described as “flex limit” or similar plans.
New Limits
Written cafeteria plans must be modified to reflect the new $2,500 limit and other provisions. If the plan follows the proposed regulations issued in 2007, the participants may rely on the plan to be qualified.
Assessment
And so, as more and more medical professionals become employees, FSA rules should be monitored closely by doctors and their FAs.
Conclusion
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Filed under: Retirement and Benefits, Career Development, Taxation Tagged: | FSAs, IRS Guidance on Health FSAs, 125 Cafeteria Plans
$2,500 cap on health care FSA contributions
Yes – Right now, there’s no tax-law limit on contributions to your employer’s health care flexible spending account (FSA) plan (although many plans impose their own limits). Amounts you contribute to the FSA plan are subtracted from your taxable salary.
Then you can use the funds to reimburse yourself tax-free to cover qualified medical expenses. Good deal!
Dean