The IRS announced that for 2015 the maximum annual contribution limit for employer sponsored health flexible spending accounts (FSAs) will increase by $50 to $2,550.

The increased limit will begin January 1, 2015. This will be the second big change to the savings account in the last year and the first contribution increase since the Patient Protection and Affordable Care Act set a $2,500 annual limit.

The U.S. Department of the Treasury and the IRS issued a notice which went into effect in 2014 modifying the longstanding “use it-or-lose it” rule for FSAs. The modification now allows plan sponsors to offer participants the option of carrying over unused balances of up to $500 remaining at the end of a plan year. In addition, the existing option for plan sponsors to allow employees a two-and-a-half month grace period after the end of the plan year remains in place. However, a health FSA cannot have both a carryover and a grace period: it can have one or the other or neither.

An FSA allows employees to pay for out-of-pocket health care expenses not covered by the individual’s health insurance plan using contributed pre-tax dollars. These expenses include deductibles, copayments and other qualified medical, dental or vision expenses.

The monthly limits for qualified transportation benefits will be unchanged in 2015, assuming no year-end action is taken by Congress and remain at:

  • $130 per month for transit passes
  • $250 per month for qualified parking

Commuting costs can be deducted, by employees, from their paychecks, tax-free, through an employer benefit program up to the allowable monthly limit. A company that subsidizes employees’ commuting costs may also do so up to the allowable limit, this results in lower payroll taxes than if they paid that money in wages.

For more information on Paypro’s FSA Solutions, please click here.