IRS Releases Notice 2012-40 Giving Guidance for the $2,500 FSA Limit!

By eflexgroup compliance team

We are excited to present this notice to you. Here are the highlights:

1. The IRS Notice 2012-40 answers the question: “What defines a tax year in applying the Health FSA $2,500 limit?” The notice specifically states the cafeteria plan year is the “tax year”. The notice determines that an “off calendar year” can fall into 2013 and still have an unlimited Health FSA amount.

2. The 2.5 month claim filing extension can also be continued even though the employer’s plan may end sometime in 2013.

3. If an employee and spouse work at the same company, they are allowed to enroll for $2,500 each. Notice 2012-40 addresses this question on page 5. Furthermore, spouses who work at different companies can each elect $2,500.

4. The $2,500 Health FSA limit does not apply to premium conversion a.k.a. Premium Only Plans (POP), and other various options in a cafeteria plan; such as Dependent Care. 

5. Employer contributions to employee FSA accounts do not reflect in the total. Thus, an employer can give $2,500 and the employee can still enroll in $2,500. In effect, circumventing the $2,500 limit.

6. Amendments to plan documents are required for the $2,500 limit for all plans that start in 2013. eflex documents are amended, and current clients will receive updates at renewal.

7. Stunning news–The IRS is requesting input from taxpayers on how to construct a new “use it or lose it rule”. Yes, you read it right. Tax payers are encouraged to contact the IRS with feedback. Address information is located at the bottom of the Notice.


Ric Joyner, MBA, CEBS, GBA, CFCI

eflexgroup Compliance Chair