Ahead of the new year, the IRS has announced new contribution limits to Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs). FSA and HSA accounts are two popular options to help employees pay for qualified medical expenses.
It’s imperative for HR pros to stay up to date on new limits and regulations for these tax-saving benefits to ensure your employees can get the most out of their funds as employees make their benefit elections.
Here’s what you need to know.
New FSA and HSA limits
The IRS recently announced increases for both HSA and FSA contribution limits for 2024, as well as other guidelines.
For FSAs, the employee contribution limit will increase by 5% – $150 – going from $3,050 to $3,200. There will also be an increase in the carryover limit from year to year, which is optional for employers. Carryover limits are going from $610 to $640 for the new year.
The 5% increase is generally on par with predictions and is slightly lower than the $200 increase for 2023.
On the other hand, HSA contribution limits are at a record high.
In 2024, HSA contributions limits are set at $4,150 for individuals and $8,300 for families, a 7% increase from 2023, which had limits of $3,850 and $7,750 respectively.
Catch-up contribution limits will stay at $1,000.
Help employees make the most informed decisions
It’s essential to make sure that employees know their contribution limits and get all the information they need to make informed decisions for 2024. Here’s how HR can help employees make the best, most well-informed decisions for their specific situations.
Go beyond basic knowledge. By the time open enrollment rolls around, eligible employees should at least have basic knowledge about FSA and HSA requirements, like how they can reduce taxable income. But to make sure that employees are making fully informed decisions, it’s important to highlight the smaller details, too.
- There is only one FSA contribution limit that applies to both individuals and families. This differs from an HSA, where there is a separate limit for health plan participation as an individual versus a family.
- If two spouses each have access to their own FSA through their respective employers, they could each elect the maximum of $3,200 for a combined household set-aside of $6,400.
- The FSA limit does not include the optional carryover amount. For example, if an employer offers a carryover of up to $610 in 2023, an account holder could have a balance of $3,810 in their FSA in 2024 ($3,200 2024 FSA max + $610 2023 FSA carryover).
- The FSA contribution limits apply only to pre-tax employee contributions. Employers may contribute to an employee’s FSA in excess of the employee contribution maximum.
Keep the conversation going. Beyond open enrollment season, communication about HSA and FSA funds shouldn’t stop. Throughout the year, there are different opportunities for HR to remind employees about using and depleting funds before the end of the year.
Diversify communication. Depending on your workforce demographics, you may want to utilize different communication channels and tactics to reach more employees. For example, flyers and lunch-and-learns may be best for a workforce skewed toward older generations, while a younger workforce may be more engaged with on-demand webinars or email communication.