On October 18, 2022, the IRS released the 2023 inflationary (cost of living) adjustments relating to several types of benefits. Below are select highlights from IRS Revenue Procedure 2022-38.
Flexible Spending Account (FSA) Cap The limit on the amount that can be contributed to a health flexible spending account (FSA) through voluntary salary reductions for plan years beginning in 2023 increases to $3,050, up from $2,850 in 2022.
Carryover For cafeteria plans that permit a carryover of unused amounts, the maximum carryover limit will increase to $610 in 2023, up from $570 in 2022.
Dependent Care Assistance As a reminder Dependent Care Assistance offered in accordance with Internal Revenue Section 129 is not tied to inflation and remains $5000 ($2,500 in the case of married individuals filing separately).
Qualified Transportation Fringe Benefits With regard to transportation expenses reimbursed by an employer and excludable from the employee’s income under a qualified transportation program, the limits increase for 2023:
| | 2023 | 2022 |
| Commuter HighwayVehicle (van pooling) and Any Transit Pass | $300 | $280 |
| Qualified Parking | $300 | $280 |
As a reminder, the Tax Cuts and Jobs Act (TCJA) suspended the employer’s deductibility of qualified transportation expenses, effective January 1, 2018. The tax exclusion available to employees remains applicable. In addition, the TCJA suspended the qualified bicycle commuter benefit from December 31, 2017 through December 31, 2025. An employer sponsoring a qualified bicycle fringe benefit plan can still take a tax deduction (up to $20 per month, or $240 annually) for reimbursing participating employees who use a bicycle for traveling between their home and place of employment. However, these amounts can no longer be excluded from the employee’s income.
Qualified Adoption Assistance Reimbursement Program (IRC §137) An employer- provided adoption assistance program that meets the qualifications of IRC §137, allows participants to recover expenses relating to adoption, such as reasonable adoption fees, court costs, attorney’s fees and traveling expenses. Below are the exclusion limits and AGI phase-out limits for 2023 and 2022:
| | 2023 | 2022 |
| Exclusion Limit | $15,950 | $14,890 |
| AGI Phase-out Limits | Between $239,230 and $279,230 | Between $223,410 and $263,410 |
Health Savings Accounts The 2023 annual limits applicable to health savings accounts were released earlier this year (see 2023 COLAs for HSA and EB-HRAs, Benefit Beat, 5/03/22).
Archer Medical Savings Accounts The Archer MSA pilot project ended on December 31, 2007; therefore, no new MSAs could be established after that date. For existing MSAs, the annual deductible limits of a high deductible health plan used in conjunction with an Archer Medical Savings Account for 2023 are increasing slightly:
| | 2023 | 2022 |
| Single | Family | Single | Family |
| HDHP Annual Deductible | Between $2,650 and $3,950 | Between $5,300 and $7,900 | Between $2,450 and $3,700 | Between $4,950 and $7,400 |
| Out-of-Pocket Expenses | $5,300 | $9,650 | $4,950 | $9,050 |
Long-Term Care Premiums The IRS limitations relating to eligible long-term care premiums includible as medical care, as defined by IRC §213(d) are:
| Age at end of tax year | 2023 Premium Limit | 2022 Premium Limit |
| <40 | $480 | $450 |
| >40 but <50 | $890 | $850 |
| >50 but <60 | $1,790 | $1,690 |
| >60 but <70 | $4,770 | $4,520 |
| >70 | $5,960 | $5,640 |
QSEHRA Payments and Reimbursements A qualified small employer health reimbursement arrangement, known as a “QSEHRA”, allows eligible small employers (those employing fewer than 50 employees and who do not offer health coverage) to reimburse health insurance premiums for individual coverage purchased either through or outside the marketplace. Such arrangement must meet certain criteria, specifically, the QSEHRA:
- Must be funded solely by the eligible small employer; no salary reduction contributions can be made under this arrangement; and,
- Provides, following the employee’s proof of coverage, for the payment or reimbursement for medical care expenses, as defined in IRC Section 213(d)), including premium for health coverage through the individual market, incurred by the eligible employee or his/her family members. For 2022, the annual amount of payments and reimbursements is capped at $5,450 for employee- only, or $11,050 for arrangements that provide for payments or reimbursements for the employee’s family members. Both of these limits are subject to inflationary adjustments. Accordingly, beginning in 2023, the total amount of payments and reimbursements will increase to $5,850 for employee-only; $11,800 for family coverage). As a reminder, the total amount of permitted benefits received under a QSEHRA must be reported in Box 12, using Code FF of the Form W-2.
With regard to excepted benefit HRAs, the IRS previously announced that the maximum contribution amount for plan years beginning in 2023 will be $1,950 (see May 3, 2022 Benefit Beat).
The information contained in this Benefit Beat is not intended to be legal, accounting, or other professional advice, nor are these comments directed to specific situations. This information is provided as general guidance and may be affected by changes in law or regulation. This information is not intended to replace or substitute for accounting or other professional advice. You must consult your own attorney or tax advisor for assistance in specific situations. This information is provided as-is, with no warranties of any kind. CBIZ shall not be liable for any damages whatsoever in connection with its use and assumes no obligation to inform the reader of any changes in laws or other factors that could affect the information contained herein.