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The Internal Revenue Service has announced its annual cost-of-living adjustments for calendar year 2023. Importantly for health and welfare plan sponsors, administrators and participants, several limits are increasing from the limits of 2022. Among the increased limits are the following:
- FSA health. The dollar limit on voluntary employee salary reductions for contributions to flexible health spending arrangements under Section 125(i) of the Internal Revenue Code is $3,050 for 2023 (compared to $2,850 $ in 2022). For flexible spending arrangements that allow carry-overs, the maximum carry-over is $610 in 2023 (compared to $570 in 2022).
- Qualified transportation. The monthly limit on the aggregate benefit exclusion amount for transportation in a commuter highway vehicle and any public transit passes under Internal Revenue Code § 132(f)(2)(A) passes to $300 in 2023 (from $280 in 2022). The monthly benefit exclusion limit for qualified parking under § 132(f)(2)(B) is $300 in 2023 (compared to $280 in 2022).
- Adoption assistance. The maximum amount that may be excluded from an employee’s gross income for amounts paid or expenses incurred by an employer for qualifying adoption expenses provided under an adoption assistance program under Section 137(b)(1) of the Internal Revenue Code is $15,950 (down from $14,890).
Unfortunately, the announcement of these increases will come too late for some employers who have already offered their 2023 Open Enrollment. However, for those who have not, these increases offer employees the opportunity to take advantage of increased tax benefits. Employers should take care to coordinate payroll practices, employee communications and administrative practices to implement these higher limits.
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.
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