Yesterday, the day after the election (I am sure this was just a coincidence), the Yale University benefits office sent an email (see, below) to Yale employees, highlighting a little known provision of Obamacare.
Today about 30-35 million Americans use Flexible Spending Accounts (FSA) to pay for basic medical needs not covered by insurance. Under existing federal law there is no cap on the amount that can be placed in an FSA (though employers can set caps - Yale's is apparently $12,000 a year). Amounts placed into an FSA are not subject to Federal income tax.
FSA funds can be used to pay for out of pocket medical, dental and vision expenses. One specific category are special needs children who can often run up substantial uninsured expenses - in fact, FSAs can be used to fund special needs education.
However, as of January 1, 2013, FSA contribution limits will be capped at $2,500 in order to raise tax revenue (an anticipated $13 billion) to pay for Obamacare.
If, for instance, you are married and in the 25% tax bracket (which begins with taxable income above $69,000 a year) and had been spending $10,000 a year out of an FSA your taxes will increase by $1875 a year. If you are in the 28% bracket (starting at $139,000) your taxes increase by $2100.
One other significant change is that currently you can deduct medical expenses in excess of 7.5% of your adjusted gross income - this will be changed to 10% as of January 1, 2013. The change is expected to raised $15 billion in additional tax revenue.
Is there anyone out there who thinks it is just happenstance that these tax changes became effective only after the 2012 election?
We would like to make you aware of a significant federally mandated
change which will impact Yale’s healthcare flexible spending account
benefit. Effective January 1, 2013, as a provision of the Patient
Protection and Affordable Care Act, the annual contribution limit will
be capped at $2,500. Currently, the maximum amount of pre-tax dollars
you can set aside in a healthcare flexible spending account is $12,000.
As a participant who contributed $2,500 or more in 2012, we encourage
you to keep this in mind as you begin to plan for your 2013
out-of-pocket medical, dental and vision expenses. You will soon have an
opportunity to re-enroll in the flexible spending account benefit plan
during Annual Benefits Enrollment (December 3-17). As a reminder, you
have until March 15, 2013 to incur expenses against your 2012
contributions, and until April 30, 2013 to submit claims those for
reimbursement. We hope that this grace period is helpful for maximizing
your flexible spending benefit for 2012.
If you have any further questions, please contact an Employee Services representative.