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 2022 limits. Among the increased limits are the following:
- Health FSAs. The dollar limitation on voluntary employee salary reductions for contributions to health flexible spending arrangements under Internal Revenue Code § 125(i) is $3,050 for 2023 (up from $2,850 in 2022). For flexible spending arrangements that permit carryovers, the maximum carryover is $610 in 2023 (up from $570 in 2022).
- Qualified Transportation. The monthly limitation for the aggregate fringe benefit exclusion amount for transportation in a commuter highway vehicle and any transit pass under Internal Revenue Code § 132(f)(2)(A) increases to $300 in 2023 (up from $280 in 2022). The monthly limitation for the fringe benefit exclusion for qualified parking under § 132(f)(2)(B) is $300 in 2023 (up from $280 in 2022).
- Adoption Assistance. The maximum amount that can be excluded from an employee's gross income for amounts paid or expenses incurred by an employer for qualified adoption expenses furnished pursuant to an adoption assistance program under Internal Revenue Code § 137(b)(1) is $15,950 (up 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 provide an opportunity for employees to take advantage of increased tax-advantaged 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 to the subject matter. Specialist advice should be sought about your specific circumstances.
