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The IRS and Social Security Administration released the 2015 cost-of-living (COLA) adjustments that apply to health flexible spending accounts (FSAs) in Revenue Procedure 2014-61. The new annual limit for health FSAs, including general-purpose and limited-purpose health FSAs, is $2,550 for plan years starting on or after January 1, 2015.
The $2,550 limit is prorated for short plan years (plan years that are shorter than 12 months) and any carry over amount from participants’ previous plan years may be added to the limit. For instance, participants may elect $2,550 for the 2015 plan year and carry over a maximum of $500 from the previous plan year, making their total account value $3,050 for the 2015 plan year. In other words, the $500 carryover does not count against or affect the $2,550 salary reduction limit. Please note that an employer must decide to allow to either offer participants a option of a max $500 carryover OR the 2.5 month extension to use funds. An employer can not offer both options under their plan.