2016 FSA Contribution Limit
For 2016, the FSA Contribution Limit figures are $2,550 (Health FSA salary reduction limit) and $500 (Maximum carryover).
Effective 2016-01-01Source: Publication 969 (2016), Health Savings Accounts and Other Tax-Favored Health Plans (IRS)Verified 2026-09-02
Who it applies to
Employees who participate in a health Flexible Spending Arrangement (FSA) through an employer-sponsored cafeteria plan
What changed this year, and why
For 2016, the IRS set the health FSA salary reduction contribution limit at $2,550 per year. A plan may also allow up to $500 of unused amounts at the end of the plan year to be carried over to the following plan year.
Common questions
- What is the maximum salary reduction contribution to a health FSA for 2016?
- For 2016, salary reduction contributions to a health FSA cannot exceed $2,550 for the year, or any lower amount the plan may set.
- Can unused FSA funds be carried over to the next year?
- A plan may allow up to $500 of unused amounts remaining at the end of the plan year to be carried over and used for qualified medical expenses in the following plan year. The plan may specify a lower carryover amount. A plan may permit either a carryover or a grace period, but not both.
Self-employed people cannot have a health FSA
A health FSA is an employer-established benefit plan, typically offered as part of a cafeteria plan alongside other employer-provided benefits. Employers have complete flexibility in designing their plan and deciding which benefits to offer. However, self-employed persons aren't eligible for FSAs. Additionally, certain limitations may apply if you are a highly compensated participant or a key employee. This means that if you are self-employed, you cannot establish a health FSA on your own. You must be an employee of an employer who offers such a plan. The employer may also contribute to your FSA if specified in the plan, though contributions made by your employer to provide coverage for long-term care insurance must be included in income.
Health FSAs are employer-established benefit plans. These may be offered in conjunction with other em- ployer-provided benefits as part of a cafeteria plan. Em- ployers have complete flexibility to offer various combina- tions of benefits in designing their plan. Self-employed persons aren’t eligible for FSAs. Certain limitations may apply if you are a highly compensated participant or a key employee.
Publication 969 (2016), Health Savings Accounts and Other Tax-Favored Health Plans (IRS)
You elect once a year and cannot change it at will
At the beginning of each plan year, you must designate how much you want to contribute to your health FSA through a salary reduction agreement. Your employer then deducts that amount periodically, generally every payday, in accordance with your annual election. Once you make this election, it is locked in for the entire plan year. You cannot change or revoke your election at will. The only exception is if you experience a change in your employment or family status that is specifically allowed by the plan. This means you need to carefully estimate your qualified medical expenses for the year before making your election, since you will not be able to increase or decrease your contribution amount later unless you qualify for a permitted change in status.
You can change or re- voke your election only if there is a change in your employment or family status that is specified by the plan.
Publication 969 (2016), Health Savings Accounts and Other Tax-Favored Health Plans (IRS)
The whole election is available on day one
When you enroll in a health FSA, you elect a contribution amount for the year. From the very first day of the coverage period, you have access to the full amount you elected to contribute, even if you have not yet actually contributed that amount through payroll deductions. This is a key feature of health FSAs that distinguishes them from other types of accounts like health savings accounts. However, you must incur the qualified medical expense during the coverage period to be eligible for reimbursement. Distributions must be used only to reimburse you for qualified medical expenses you incurred during the period of coverage. The maximum amount you can receive tax free is the total amount you elected to contribute to the health FSA for the year.
You must be able to receive the maximum amount of reimbursement (the amount you have elected to contribute for the year) at any time during the coverage period, regardless of the amount you have actually contributed. The maximum amount you can receive tax free is the total amount you elected to con- tribute to the health FSA for the year.
Publication 969 (2016), Health Savings Accounts and Other Tax-Favored Health Plans (IRS)
Use it or lose it, and the two escapes from it
Health FSAs are generally use-it-or-lose-it plans, which means that amounts remaining in your account at the end of the plan year are forfeited and cannot be carried over to the next year. However, the plan may provide two possible exceptions to this rule. First, the plan may offer a grace period after the end of the plan year, during which you can use any remaining funds from the previous year to pay for qualified medical expenses incurred in that grace period. Second, the plan may allow a carryover of up to $500 of unused amounts remaining at the end of the plan year to be used for qualified medical expenses incurred in the following plan year. The plan may specify a lower dollar amount as the maximum carryover. However, a plan may allow either the grace period or the carryover, but not both. Any unused amounts in excess of the carryover limit are forfeited.
Plans may allow up to $500 of unused amounts remain- ing at the end of the plan year to be paid or reimbursed for qualified medical expenses you incur in the following plan year.
Publication 969 (2016), Health Savings Accounts and Other Tax-Favored Health Plans (IRS)
What the money may be spent on, and what it may not
Qualified medical expenses for a health FSA are those specified in the plan that generally would qualify for the medical and dental expenses deduction, as explained in Publication 502. However, non-prescription medicines (other than insulin) are not considered qualified medical expenses for FSA purposes. A medicine or drug will be a qualified medical expense for FSA purposes only if it requires a prescription, is available without a prescription and you get a prescription for it, or is insulin. Qualified medical expenses are those incurred by you and your spouse, all dependents you claim on your tax return, certain persons you could have claimed as dependents with some exceptions, and your child under age 27 at the end of your tax year. You cannot receive distributions from your FSA for amounts paid for health insurance premiums, amounts paid for long-term care coverage or expenses, or amounts that are covered under another health plan.
Qualified medical expenses. Qualified medical expen- ses are those specified in the plan that generally would qualify for the medical and dental expenses deduction. These are explained in Pub. 502. Also, non-prescription medicines (other than insulin) aren’t considered qualified medical expenses for FSA purposes.
Publication 969 (2016), Health Savings Accounts and Other Tax-Favored Health Plans (IRS)
Only expenses from your period of coverage qualify for reimbursement
For 2016, the IRS allows employees to salary-reduce up to $2,550 into a health FSA. However, you may only be reimbursed from the FSA for qualified medical expenses that are incurred while you are actually covered under the plan. An expense you incurred before your coverage began, or after it ended, is not reimbursable from the FSA even if it is otherwise a qualified medical expense. This rule prevents participants from using an FSA to reimburse pre-existing bills or bills from a prior year in which they were not enrolled.
Generally, distributions from a health FSA must be paid only to reimburse you for qualified medical expenses you incurred during the period of coverage.
Publication 969 (2016), Health Savings Accounts and Other Tax-Favored Health Plans (IRS)
Having a general-purpose health FSA generally rules out an HSA
An employee covered by an HDHP and a health FSA or an HRA that pays or reimburses qualified medical expenses generally can't make contributions to an HSA. This rule prevents double-dipping: you cannot use a general-purpose health FSA to reimburse medical expenses tax-free while also making tax-deductible contributions to an HSA. The IRS does allow exceptions for certain types of FSAs and HRAs that are compatible with HSA eligibility, such as limited-purpose FSAs (which only reimburse dental, vision, or preventive care) or post-deductible FSAs (which only reimburse expenses after the HDHP deductible is met). However, if you are enrolled in a general-purpose health FSA that reimburses a broad range of medical expenses before the deductible is met, you are generally disqualified from making HSA contributions. This incompatibility is one reason why individuals with HSAs should carefully consider whether to enroll in a general-purpose FSA during open enrollment.
An employee cov- ered by an HDHP and a health FSA or an HRA that pays or reimburses qualified medical expenses generally can’t make contributions to an HSA.
Publication 969 (2016), Health Savings Accounts and Other Tax-Favored Health Plans (IRS)
You cannot be paid ahead of the expense, or paid twice for it
To receive reimbursement from a health FSA, you must provide written documentation from an independent third party confirming that a medical expense has been incurred and stating the amount. You must also provide a written statement that the expense has not been paid or reimbursed under any other health plan coverage. This prevents double reimbursement: you cannot receive FSA funds for an expense that was already covered by another insurance plan or paid from another tax-advantaged account. Additionally, the FSA cannot make advance reimbursements for future or projected expenses. You can only be reimbursed for expenses that have actually been incurred, not for expenses you expect to incur in the future. This means you cannot receive a lump-sum payment at the beginning of the year based on estimated expenses; instead, you must submit claims as expenses occur and provide documentation for each one. These substantiation requirements ensure that FSA funds are used only for legitimate, documented medical expenses that have not been reimbursed elsewhere.
You must provide the health FSA with a written state- ment from an independent third party stating that the med- ical expense has been incurred and the amount of the ex- pense. You must also provide a written statement that the expense hasn’t been paid or reimbursed under any other health plan coverage. The FSA can’t make advance reim- bursements of future or projected expenses.
Publication 969 (2016), Health Savings Accounts and Other Tax-Favored Health Plans (IRS)
How each figure was verified
Each number below was read from a stored copy of the document named beside it, and checked to occur word for word in the quoted sentence. The digest is of that stored text.
Publication 969 (2016), Health Savings Accounts and Other Tax-Favored Health Plans (IRS)
- Health FSA salary reduction limit
Salary reduction contributions to your health FSA can’t be more than $2,550 a year
- Maximum carryover
Plans may allow up to $500 of unused amounts remain- ing at the end of the plan year to be paid or reimbursed for qualified medical expenses you incur in the following plan year. The plan may specify a lower dollar amount as the maximum carryover amount.