New IRS Guidance on Health FSAs for Doctors

Posted on July 11, 2012 by Dr. David Edward Marcinko MBA MEd CMP™

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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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