2016 and 2017 Flexible and Dependent Care Spending Accounts (FSA) Contribution Limits

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FSA accounts[Updated with 2017 limits] Flexible Spending Accounts (FSA) have been around for a while now and many families use them as a tax advantaged way to save for health care and dependent care related costs. However every year various limits associated with FSA accounts are reviewed by the IRS and adjusted as needed. The table below summarizes the key changes over the last few years.  If you use FSA or similar pre-tax accounts these are changes you should be aware of, particularly during open enrollment when you make your FSA allocations for the year ahead.

Many employers offer Flexible Spending Accounts (FSA) to their employees. There are generally two varieties of FSA accounts – one for qualified health/medical related costs and one for dependent care expenses. Employees can choose to have either or both. The annual contributions to a FSA account are limited to the lesser of the mandated IRS limits or the employee’s or spouses total “earned income” for the year.

A health care FSA is an account where a certain amount of money is deducted from an employee’s paycheck (pre-tax) and placed in to an account that is used to pay for authorized medical expenses. These expenses include doctor’s visits, prescription medications and eyeglasses. However funds in a Flexible Spending Account cannot be used to pay for over the counter (OTC) products, unless they are prescribed by a doctor. Some drugs, including insulin, will be exempt from this rule. For doctor’s to prescribe a OTC drug, they will need to show cause that the drug is a necessity for the patient. If you and your spouse each have a Health Care FSA, you may each contribute up to the annual maximum (per table below), however you may not submit the same claims to both accounts, and you may not transfer funds between accounts. FSA contributions (employee salary reductions) are limited under the Affordable Care Act (ACA) and may only be adjusted annually for inflation in increments of $50.

A dependent care FSA is also pre-tax benefit account that can be used to pay for dependent care services, such as day care, preschool, summer camps, and non-employer sponsored before or after school programs. It can also be used for elder daycare – when an elderly or disabled parent is considered a dependent and you are covering more than 50% of their maintenance costs. The Dependent Care FSA limit shown in the table below is based on filing status. Generally joint filers have double the limit of single or separate filers. The dependent care FSA maximum is set by statute and is not subject to inflation-related adjustments.

However there are mandated FSA contribution limits on how much employees can contribute to these accounts as shown in the table below. Employers though can also set their employees maximum contribution based on filing status and income, which may be below the IRS contribution limits. 

Coverage YearMax Health Care FSA Contribution (per person/employee)Dependent Care FSA Max Election (married)Dependent Care FSA Max Election (filing separate)
2017$2,600$5,000$2,500
2016$2,550$5,000$2,500
2015$2,550$5,000$2,500
2014$2,500$5,000$2,500

Biggest benefit of a FSA – Because FSAs are funded on a pre-tax basis from employee pay checks, no tax is paid on the contributions. This means that the employee is essentially getting a discount ( on medical expenses equal to their effective tax rate (30%+ for those with higher tax rates/incomes), often representing hundreds of dollars in savings over the course of the year that these funds can be used. Also in today’s modern world, most companies sign up with a FSA provider that provides a debit card or online claim portal making it very easy to get reimbursements for qualified expenses.

However one big watch-out with these accounts is that any unused FSA funds at the end of the plan year are forfeited by the employee, known as the use-it or lose-it feature.  Some employers do allow a $500 carry-over, but that is not mandated. Either way this is why you must spend time planning your FSA contribution for the year ahead and only put away what you can reasonably expect to spend. Look at your past expenses as a guide and adjust for any changes to your family size and/or known health issues to determine how much to put into each type of FSA account. If you do want more control on your health care accounts and want funds roll-over year to year consider a High Deductible Health Plan with HSA account.

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15 Comments on "2016 and 2017 Flexible and Dependent Care Spending Accounts (FSA) Contribution Limits"

Bill

You idiots. Half the Obama staff works for the insurance business and the other half for the pharmaceutical industry. Dumb americans.

[…] maximum reduced by 2,500. Beginning Jan. 1, 2013, the limit on pre-tax contributions to FSA or HCSA will be reduced from $5,000 to $2,500 per year. Because of this regulatory change, all employees […]

DiDi Henry

We are seeing the ramifications to this insane healthcare bill already. Have been waiting to put braces on my daughter on January 3rd (first appointment available after flex card was reactiviated). The bill for the braces is $3,800. NOw, I can only contribute $2500 for the flex card…and my husband’s company says he can’t do a Flex card for the remaining balance. That sucks! Once again, the middle guy gets gouged. We weren’t even going to put anything on the flex card to cover regular medical bills for the year. Last year in January, I had an emergency medical treatment where I was hospitalized twice in one month. My Out of Pocket was over $1,500. How in the heck is $2500 supposed to cover a family????????? Get a grip. This plan sucks and it will only get worse.

LELAND L. COGDELL, JR.
No, Brian. DC is staying the same. The max is and will be $5000 per family. Once the child hits the 13th birthday, this benefit falls away, per IRS regulations. The max is $5000 for a family on the MC side, but that is $2500, times two. One person can no longer sign up for $5000 and the other spouse sign up for nothing. If couples have been doing that in the past, they will have to change it during Open Season (mid-November to mid December later this year. OTC meds need a doctor’s prescription–still. We tried to get that changed back to the way it was (just sending in the receipt and/or coping the box face when the receipt was not descriptive enough to understand). This was all not changed to improve health care. It is all part of the Congress trying to balance the budget and reduce the… Read more »
Jerris

There seems to be a large assumption that the spouse has the same opportunity to have an FSA. My FSA is for my entire family. My husband does not have this as an option. So this change in the law puts us at a huge disadvantage right at a time when I will be having a surgery at the first of the year that my insurance will not cover, but is medically necessary. :-(

Donna

This really sucks! We are paying for health care for those that don’t lift a finger and go to work, again on the backs of the middle class, nice call democrats! I thought you were for the middle class? think again, LOOSERS!

Joseph

Actually you were already paying for health services provided to uninsured citizens, but you didn’t care becasue it wasn’t an issue until Republicans started to attack the Affordable Health Caer Act. Now, there is a madate (which the Republicans fought all the way to the US Supreme Court) that requires all working people above the poverty line to get health insurance and be accountable for their own health fees. There are exemptions for the extremely poor. This should lower the cost of insurance for all citizens except the insurance companies will probably find a way to raise the premium costs and gobble up any savings. The Democrats and the President have done you a favor, but there are some very wealthy people who continue to lie about provisoons of the plan because health costs have been their cash cow and they don’t want affordable health care to diminish their profits.

Bondy
Requiring people to buy insurance (increase demand) will cause the price (premium) to go up if supply stays the same. This is simple supply and demand. We asked for health care reform so it will be more affordable for people, but instead, the government reformed the health care to make sure everyone has to buy insurance. Look, the people who asked for health care reform are the ones who want to buy medical insurance and are very concerned about not able to afford it one day as the premium keeps going up faster than normal inflation. Now there is nothing in the bill guanrantee the premium will be lower, but we must buy health insurance. How is that addressing our concerns? In addition to not addressing the real problem, there are many provisions in the bill that are just outright robbing us of our liberty, but I don’t think you… Read more »
Jerris
Bondy: “I don’t think you care or will believe any of them so no point for me to discuss them here.” I think that is unnecessary. We all care or we wouldn’t be posting on here. I do have to add that the supply and demand for insurance is different than traditional supply and demand. The more insurance people purchase the better off the insurance company is. I agree though that there is no guarantee that the insurance company will pass on that savings to their customers. Healthcare has been dramatically increasing before this bill was ever discussed. It has a lot more to do with the fact that people are living longer, technology advancing and the fact that many people don’t have insurance and use the hospitals as a way to get medical care. Honestly, it is much cheaper for people to die than to use advanced technology to… Read more »
Brian

Is the Dependant Care limit changing?

Tim

Yep, Nancy said pass the bill and we could see what is in it. How in the world could they even imagine that it would reduce health care costs? They probably don’t consider the extra taxes paid because of the limit on FSA’s to be reflected in reducing of costs. People who have some medical condtions will have to pay more after tax dollars for their care. Welcome to the USSA!!

[…] $50 per month on my premiums by getting my medical coverage via my company, but dental, vision and FSA through my wife’s […]

Gerald

It’s going to cause more taxable income for employees. I have already seen my premuims and co-pays go up while my coverage go down. The Democrats have put health care back 10 years instead of moving forward on the road to real reform.

2011 HSA Limits and Tax Rules – How to Best Utilize Health Savings Accounts | Saving to Inve$t

[…] In addition, any funds in your Health Savings Account that are not used during the calendar year, can be rolled over into the following year. Therefore, if funds are not used and they continue to roll over, the balance in your HSA account can grow significantly over time. This is a key advantage over the standard Flexible spending accounts (FSA),  where you have to spend your contributions in the year/period you make them or lose the funds forever. (See 2011 FSA limits) […]

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