The IRS has released the 2023 maximum contribution amounts for health savings accounts and flexible spending accounts. You’ll want to make note of the changes when discussing your employee benefits during annual open enrollment.
The changes, which the IRS releases in November each year, will affect contribution limits for HSAs, FSAs and 401(k) and other retirement accounts.
The maximum contribution levels are readjusted every year to account for inflation, along with maximum retirement plan contribution limits.
They also cover the minimum deductibles that qualify programs as high-deductible health plans (HDHPs), which an HSA must be attached to under law.
Here’s the rundown of the changes going into 2023:
HSAs and HDHPs
HSAs allow your staff to set aside a portion of their pre-tax earnings into an account they can tap later to reimburse for qualified medical expenses, including copays, coinsurance, deductibles and medications.
Every year, the employee must decide how much they want their employer to deduct (pre-tax) from their paycheck to set aside in their HSA. Funds in an HSA can be rolled over indefinitely year after year and invested, much like a 401(k) plan.
For 2023, the annual maximum HSA contribution is:
- $3,850 for self-only coverage (up $200 from 2022); and
- $7,750 for family coverage (up $450).
In order to have an HSA, an employee must be enrolled in an HDHP. To qualify, the health insurance plan must have a minimum deductible of:
- $1,500 for self-only coverage (up $100 from 2022); or
- $3,000 for family coverage (up $200).
FSAs are similar to HSAs in that they are funded with pre-tax dollars and can be used to reimburse for qualified medical expenses. However, the funds in the account must be exhausted or the employee loses the rest, except if the employer allows them to carry over a set portion every year.
The annual contribution limit for 2023 has increased to $3,050, up $200 from 2022.
Employers, under the law, may allow employees to carry over FSA funds from one year to the next. Under this option, an employee can carry over up to $610 of unused funds to the following plan year.
In other words, a worker with $610 of unspent FSA funds at the end of 2023 could carry over those funds for use in in 2024. The catch: These funds must be spent by March 15, 2024.
The maximum for the current year is $570, and your employees, if you allow it, would have until March 15, 2023 to spend those funds.
Retirement plan maximums
In 2023, employees who participate in 401(k), 403(b) and most 457 plans will be able to contribute up to $22,500, up from $20,500 in 2022.
Staff aged 50 or older can include a catch-up contribution of $7,500 per year, up from $6,500.
Also, the limits on annual contributions to an individual retirement arrangement have been increased to $6,500, up from $6,000 — although the IRA catch-up limit for people age 50 and over is the same: $1,000.
As we enter the final stretch of 2022, it’s important that you inform your employees of these new limits so they can plan their salary deductions accordingly.