What is an HRIS?
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Overview of the healthcare FSA limit for the upcoming year
What’s New with Healthcare FSA Contribution Limits?
Each year, the IRS reviews and may adjust the contribution limits for healthcare Flexible Spending Accounts (FSAs). For the upcoming plan year, the healthcare FSA limit has increased, allowing employees to contribute more pre-tax money to cover eligible medical expenses. This change is designed to help individuals and families save more on out-of-pocket health care costs, including copays, prescriptions, and other qualified expenses.
Healthcare FSAs are a popular benefit in many health plans, giving employees the chance to set aside money on a pre-tax basis. The new limit means that those enrolled in a health FSA can now contribute more, which can be especially helpful for families with higher care expenses or those planning for major medical needs. It’s important to note that these accounts are different from Health Savings Accounts (HSAs), which have their own contribution limits and eligibility rules. FSAs are often paired with traditional health plans, while HSAs are linked to high-deductible health plans and can be used for a broader range of expenses, including limited purpose FSA options.
- Contribution limits: The updated FSA contribution limit applies to the new plan year, so employees should review their options during open enrollment.
- Eligible expenses: Funds in a healthcare FSA can be used for a wide range of medical expenses, including dependent care if you have a care FSA, but not for HSA-eligible expenses unless you have a limited purpose FSA.
- Tax savings: Contributions are made pre-tax, reducing taxable income and helping employees save money on health care costs.
Employers and HR professionals need to communicate these changes clearly, as employees may want to adjust their contributions to maximize their tax savings and coverage. For more details on how these changes can impact other benefits, such as paid sick leave, check out this resource on Colorado paid sick leave for HR professionals.
Understanding the new FSA contribution limits is the first step in making informed decisions during open enrollment. As the year progresses, HR teams will need to ensure their systems and processes are updated to reflect these changes, supporting employees in managing their health savings and care expenses efficiently.
How HR information systems manage FSA limit updates
How HRIS Platforms Process Annual FSA Limit Adjustments
Human resources information systems (HRIS) play a crucial role in managing flexible spending account (FSA) contribution limits each plan year. When the IRS announces new healthcare FSA limits, HRIS platforms must be updated to reflect these changes so employees can make informed decisions during open enrollment. This is especially important for those who want to maximize their tax savings by contributing the new maximum amount to their health care or dependent care FSA. Most modern HRIS solutions are designed to handle annual updates for FSA, HSA, and other benefits accounts. Here’s how these systems typically manage the process:- Automated Updates: Many HRIS vendors provide regular updates to ensure the latest FSA and HSA contribution limits are available for each plan year. This helps HR teams avoid manual errors and ensures compliance with IRS regulations.
- Eligibility Checks: The system verifies which employees are enrolled in a health plan or eligible for a limited purpose FSA, dependent care FSA, or health savings account. This ensures only qualified employees can elect to contribute up to the new limit.
- Communication Tools: HRIS platforms often include email and news features to notify employees about changes to contribution limits, eligible expenses, and important deadlines. This helps employees understand how much they can save and what care expenses are covered.
- Payroll Integration: Updated contribution limits are synced with payroll systems, so employee contributions are deducted correctly throughout the plan year. This is essential for both health FSA and dependent care FSA accounts.
Challenges in implementing new FSA limits within HRIS
Complexities in Updating Contribution Limits
Adjusting the healthcare FSA contribution limit each plan year is not as simple as entering a new number into the system. HR information systems (HRIS) must accurately reflect the latest IRS guidelines for FSA, dependent care FSA, and limited purpose FSA accounts. This involves updating plan documents, payroll integrations, and employee communications to ensure that all enrolled individuals are aware of the new contribution limits and eligible expenses.System Integration and Data Accuracy
One of the main challenges is ensuring that all modules within the HRIS—such as payroll, benefits administration, and employee self-service—are synchronized. If the FSA or HSA contribution limits are not updated consistently, employees might accidentally over-contribute or miss out on tax savings. This can result in compliance issues and increased administrative workload for HR teams. For organizations using multiple platforms or third-party vendors, coordinating these updates can be even more complex.Communication and Employee Engagement
HR professionals must also ensure that employees receive timely and clear information about changes to their health care FSA, dependent care, or HSA eligible plans. This often means sending targeted email updates, updating benefits portals, and providing FAQs about eligible expenses and new contribution limits. Miscommunication can lead to confusion, reduced engagement, or even missed opportunities for employees to save money on qualified medical expenses.Testing and Compliance
Before the new plan year begins, it is essential to test the updated HRIS configuration. This includes verifying that payroll deductions for flexible spending accounts, health savings accounts, and dependent care FSAs are calculated correctly. HR teams should also confirm that the system flags any contributions that exceed the IRS limit, helping employees stay compliant and avoid tax penalties. For practical steps on updating references and ensuring system accuracy, you can refer to this guide on updating references in HRIS.- Multiple plan types (health FSA, dependent care FSA, limited purpose FSA) require separate updates
- Open enrollment periods add pressure to implement changes quickly and accurately
- Ensuring all employees, including those with family or dependent coverage, understand their new options
Best practices for HR professionals handling FSA limit changes
Practical Steps for Managing FSA Limit Changes
When Flexible Spending Account (FSA) contribution limits change, HR professionals play a critical role in ensuring a smooth transition for both the organization and employees. Here are some actionable strategies to help manage these updates effectively:- Communicate Early and Clearly: As soon as new FSA or dependent care FSA limits are announced for the plan year, inform employees through multiple channels. Use email, internal news updates, and benefits portals to explain what the new contribution limits mean for their health care spending accounts and how it may affect their ability to save on eligible medical expenses.
- Update HRIS and Payroll Systems Promptly: Ensure your HR information system reflects the latest FSA contribution limits. This includes updating plan documents, open enrollment materials, and payroll deduction settings. Double-check that the system can handle both health FSA and limited purpose FSA changes, as well as dependent care FSA adjustments.
- Provide Educational Resources: Offer resources that clarify the differences between FSA, HSA, and other savings account options. Highlight which expenses are eligible, how employees can maximize their tax savings, and the impact of the new contribution limits on their family’s health plan coverage.
- Support Open Enrollment: During open enrollment, guide employees through their options. Explain how the new FSA limits interact with HSA eligible health plans, and help them estimate their care expenses for the year. This can empower employees to make informed decisions about how much to contribute to their flexible spending account.
- Monitor Compliance and Reporting: Regularly review your HRIS to ensure compliance with IRS rules on FSA and dependent care contribution limits. Accurate reporting is essential for both tax purposes and employee trust.
Tips for Enhancing Employee Engagement
- Host Q&A sessions or webinars to answer questions about FSA, HSA, and eligible expenses.
- Send reminders about important deadlines, such as the end of the plan year or grace periods for spending account funds.
- Encourage employees to review their health savings and spending account balances regularly to avoid forfeiting money.
Impact of FSA limit changes on employee benefits and engagement
Employee Experience and Financial Wellbeing
When the healthcare FSA contribution limit changes, it directly affects how much employees can save and spend on eligible medical expenses throughout the plan year. For many, a higher FSA limit means more opportunities to set aside pre-tax money for health care, dependent care, or limited purpose expenses. This can help families manage out-of-pocket costs and maximize their benefits under their health plan. Flexible spending accounts (FSAs) are designed to help employees pay qualified medical expenses, including those not covered by insurance. When contribution limits increase, employees enrolled in an FSA or dependent care FSA can contribute more, potentially reducing their taxable income and increasing their take-home pay. On the other hand, if the limit decreases or remains unchanged while healthcare costs rise, employees may find it harder to cover all their care expenses with pre-tax dollars.Communication and Engagement
Clear communication is essential when FSA limits change. HR professionals should use multiple channels—such as email updates, internal news posts, and open enrollment meetings—to inform employees about new contribution limits and any changes to eligible expenses. This helps employees make informed decisions about how much to contribute to their flexible spending account or health savings account (HSA) for the upcoming year.Impact on Plan Selection and Participation
Changes to FSA limits can influence employee choices during open enrollment. For example, if the health FSA limit increases, employees might be more likely to enroll or increase their contribution, especially if they anticipate higher medical or dependent care expenses. Conversely, if the limit is lower than expected, some may consider switching to an HSA eligible health plan or a limited purpose FSA to maximize their savings account options.Administrative Considerations
HR information systems play a key role in updating contribution limits and ensuring compliance. Accurate system updates help prevent errors in payroll deductions and coverage, supporting a smooth experience for both HR teams and employees. When systems are up to date, employees can trust that their contributions and reimbursements are handled correctly, which builds confidence in the benefits program.Long-Term Engagement and Trust
Ultimately, how well HR manages FSA limit changes can impact employee trust and engagement. Transparent processes, timely updates, and support for questions about eligible expenses or plan year changes all contribute to a positive experience. Employees who feel supported in managing their health care and dependent care expenses are more likely to value their benefits and remain engaged with the organization.Future trends in FSA management and HR information systems
Technology shaping FSA and HSA administration
As organizations look ahead, the management of flexible spending accounts (FSAs) and health savings accounts (HSAs) is becoming more streamlined through advanced HR information systems. These platforms are evolving to better handle annual changes in contribution limits, eligible expenses, and plan year updates. Automation is reducing manual errors and making it easier for employees to track their health care and dependent care FSA balances, submit claims, and receive reimbursements for qualified medical expenses.
Personalization and employee engagement
Modern HRIS solutions are focusing on personalization, allowing employees to receive timely email alerts about open enrollment periods, contribution limit changes, and new eligible expenses. This proactive communication helps employees and their families make informed decisions about how much to contribute to their health FSA, dependent care FSA, or HSA each year. Enhanced dashboards and mobile access are making it easier for users to monitor their spending account activity and maximize their tax savings.
Integration with broader benefits and savings strategies
There is a growing trend toward integrating FSAs, HSAs, and other savings accounts within a single platform. This holistic approach helps employees understand how their health plan, limited purpose FSA, and HSA eligible expenses work together. It also supports HR professionals in managing compliance, reporting, and plan year transitions more efficiently. As contribution limits and eligible care expenses change, seamless updates across all accounts ensure accurate coverage and reduce administrative burden.
Data-driven decision making and compliance
HR information systems are leveraging data analytics to help organizations and employees optimize their FSA and HSA contributions. By analyzing usage patterns and eligible expenses, HR teams can tailor communications and benefits education to boost engagement and help employees save more money on qualified medical expenses. Enhanced compliance tools also ensure that contribution limits and plan rules are consistently applied, reducing risk for both employers and employees.
Looking forward
As technology continues to advance, expect even more automation, integration, and personalization in FSA and HSA management. These improvements will help employees and their dependents get the most out of their health care benefits, while making it easier for HR professionals to manage open enrollment, contribution limit updates, and eligible care expenses throughout the plan year.
