Employees can boost FSA contributions by $150 next year, IRS announces

The annual contribution limit for flexible spending accounts will rise to $3,200 in 2024, an increase of $150 from this year, the IRS recently announced. Employees also can carry over up to $640 next year, if permitted under their employees’ plan, which is up by $30 over 2023.

The FSA limit news comes on the heels of the IRS’s announcement for the 2024 401(k) annual contribution limit on November 1. It also comes later than usual as most organizations already are in the middle of open enrollment. The annual limits on health savings account contributions, which were announced in May, will be $3,850 for individuals and $8,300 for families. Both represent increases of more than 7% from this year’s limits.

In addition to the FSA announcement, the IRS released a variety of other inflation-related modifications, including higher federal tax brackets for next year. For 2024, the top rate of 37% applies to individuals with taxable income above $609,350 and married couples filing jointly earning $731,200.

Among the other announcements from the IRS:

• For taxable years beginning in 2024, the maximum credit allowed for adoptions is the amount of qualified adoption expenses up to $16,810. This is up from $15,950 in 2023. The amount excludable from an employee’s gross income begins to phase out for taxpayers with modified adjusted gross income in excess of $252,150, and is completely phased out for taxpayers with modified adjusted gross incomes of $292,150 or more.
• To qualify as a qualified small employer health reimbursement arrangement, the arrangement must provide that the total amount of payments and reimbursements for any year cannot exceed $6,150 for individual coverage (up from $5,850 in 2023) or $12,450 for family coverage (up from $11,800 in 2023).

Related: Employee retention credit update: Why is IRS putting a pause on processing new claims?

• Beginning next year, the monthly limit regarding the aggregate fringe benefit exclusion amount for transportation in a commuter highway vehicle and any transit pass will rise to $315, up from $300 in 2023. The monthly limitation regarding the fringe benefit exclusion amount for qualified parking also will rise to $315, representing an increase from $300 in 2023.
• Employer-funded parking and mass-transit subsidies are tax-exempt for employees. Using pretax income, employees also pay their own mass-transit or workplace parking costs through an employer-sponsored salary deferral program.