IRS updates FSA and adoption limits

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In Rev. Procedure 2014-61, the feds increased the inflation adjusted contribution limit for health FSAs to $2,550 for the 2015 tax year. That’s a $50 increase from the current $2,500 contribution limit, and the first time the feds have increased the FSA limit since the Affordable Care Act capped contribution amounts.

Next year is also expected to be the year more employers take advantage of the FSA carryover option that the IRS put in place late in 2013, which effectively ended the 30-year-old “use-it-or-lose-it” rule that required FSA account-holders to use all FSA funds by the end of the current plan year or forfeit the unused amounts.

Now, thanks to a carryover option, employees can carryover up to $500 in unused FSA funds into the following plan year.

So, if you’re allowing the carryover, you may want to remind employees that by doing so, the FSA grace period (the period after the plan year in which workers can still use FSA funds on a tax-free basis) no longer applies.

The feds’ left the limit for dependent care FSAs — or dependent care assistance plans (DCAPs) — unchanged at $5,000 for qualifying individuals and married couples who file a joint return. For individuals who are married and file separate returns, the limit will also remain unchanged at $2,500.

Adoption tax credit

Another increase for 2015: The adoption tax credit will be $13,400, up from $13,190 this year. This credit will phase out for taxpayers with modified adjusted gross income greater than $201,010 and will be completely phased out for those earning $241,010 or more.

That’s an increase from the 2014 phase-out range of $197,880 to $237,889.