It’s that time again — the Internal Revenue Service (IRS) has released the 2023 annual inflation adjustments for health flexible spending arrangements (FSAs) and health savings accounts (HSAs), as well as the 2023 retirement plan contribution limits. Employers may want to consider communicating these upcoming changes to employees, especially during open enrollment.
Beginning January 1, 2023, eligible employees may annually contribute up to $3,050 to an FSA — also referred to as a flexible spending account — an increase of $200 from 2022.
Before the plan year begins, employees will need to decide how much to contribute through payroll deductions, and because FSAs include a use-or-lose provision, employers are encouraged to remind their employees to only contribute what they truly think they’ll spend — otherwise employees’ unspent funds will be forfeited.
Employers may choose to offer participating employees more time to use their FSA funds through either the carryover option or the grace period option:
- Under the carryover option, an employee can carry over up to $610 of unused funds to the following plan year — for example, an employee with $610 of unspent funds at the end of 2023 would still have those funds available to use in 2024. This is an increase of $40 from 2022.
- Under the grace period option, an employee has two and a half months after the end of the plan year to incur eligible expenses — for example, with a plan year ending on December 31, 2023, an employee would have until March 15, 2024, to use funds.
Throughout the year, employees can use FSA funds to pay qualified medical expenses not covered by their health plan, including co-pays, deductibles, and a variety of medical products and services ranging from dental and vision care to eyeglasses and hearing aids. Interested employees should check with their employer for details on eligible expenses and claim procedures.
HSAs are pre-tax accounts available to individuals covered under a high-deductible health plan. Eligible individuals can accumulate money, tax-free, in HSAs to pay for qualified medical expenses. The HSA limits, which are indexed for inflation every year, will increase in 2023.
The annual maximum HSA contribution for 2023 is:
- $3,850 for self-only coverage (an increase of $200 from 2022); and
- $7,750 for family coverage (an increase of $450 from 2022).
To participate in an HSA, the policyholder must, among other requirements, be enrolled in an HSA-qualified high-deductible health plan with a minimum annual deductible (not applicable to preventative services).
For calendar year 2023, a high-deductible health plan is defined as a health plan with an annual minimum deductible of:
- $1,500 for self-only coverage ($1,400 in 2022); or
- $3,000 for family coverage ($2,800 in 2022).
Retirement Plan Contributions
In 2023, employees who participate in 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan can annually contribute a maximum of $22,500, up from $20,500 — plus the catch-up contribution limit for people age 50 and over is increased to $7,500, an increase of $1,000 from 2022. Therefore, 401(k), 403(b), most 457 plans and the Thrift Savings Plan participants who are age 50 or over can contribute up to $30,000, starting in 2023.
Furthermore, the limits on annual contributions to an Individual Retirement Arrangement (IRA) increased to $6,500, up from $6,000 — although the IRA catch-up limit for people age 50 and over remains at $1,000.
View 2023 increased income ranges determining eligibility to make deductible contributions to traditional IRAs, to contribute to Roth IRAs and to claim the Saver’s Credit on the IRS website.
Katie Culliton, Editor, CalChamber
CalChamber members can read more about Health Saving Accounts and Private Retirement Savings Plans in the HR Library. Not a member? See how CalChamber can help you.