2023 Benefits Contribution Limits: What SMBs Need to Know
Quick look: Inflation is impacting more than just the daily headlines. In response to the recent rapid increase in cost of living, the IRS has announced notable changes to the amount employees may allocate to their various benefits plans in 2023. Here’s everything SMB leaders need to know about the upcoming FSA, HSA, retirement, and commuter benefits contribution limits.
Big changes are coming to the employee benefits landscape in 2023. The IRS recently announced new—and some record—contribution limit increases for retirement savings accounts, flexible savings accounts (FSAs), health savings accounts (HSAs), and commuter benefits.
These hikes come in response to the ever-increasing inflation rate in the U.S. According to the latest data from the U.S. Bureau of Labor Statistics, the year-over-year inflation rate is 8.2%. Inflation has impacted many parts of workers’ lives, including their emergency funds, retirement savings accounts, and more. Many employers have responded by adjusting salary levels, giving bonuses, and offering financial wellness benefits.
The upcoming contribution limit increases aim to not only pad employees’ financial futures but can be communicated to staff to encourage them to start contributing to these accounts or increase their contribution rate.
2023 retirement contribution limits
The IRS announced on October 21, 2022, that starting in 2023, individuals may contribute a maximum of $22,500 to their 401(k) plans. This is the largest increase on record and a $2,000 jump from the 2022 contribution limit. This contribution limit increase applies to employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan.
Other recent retirement savings-related announcements from the IRS include:
- For those age 50 and older, catch-up contributions will increase to $7,500 for 401(k)s, 403(b)s, most 457 plans, and the Thrift Savings Plan, allowing for an annual total contribution of $30,000.
- The $1,000 IRA catch-up contribution for those aged 50 and older will remain the same.
- For single people, the tax phase-out range increased from $138,000 to $153,000 (up from $129,000 to $144,000). For married couples, the range will increase to $218,000 to $228,000 (up from $204,000 to $214,000).
- Individuals can contribute up to $15,500 to their SIMPLE retirement accounts (up from $14,000).
Please find the full IRS Notice 2022-55 here >>
Employers should also note that the recently enacted SECURE Act 2.0 has taken effect and includes a variety of features designed to help Americans prepare for their golden years and aid SMBs in offering retirement savings plans to their staff.
2023 FSA limits
FSAs—which allow employees to set aside pre-tax dollars to cover various medical expenses—will also experience a contribution limit spike next year. The IRS increased the 2023 maximum contribution to $3,050, up from this year’s $2,850 limit. This $200 boost is twice as large as the usual annual $100 FSA limit increase.
It’s almost important to note that for cafeteria plans that allow the carryover of unused amounts, the maximum carryover limit will increase to $610 (up from $570).
2023 HSA limits
The trend continues with HSAs, which will also experience contribution limit increases in 2023.
According to the IRS, the limit for self-only contributions will be $3,850, up from $3,650 this year. For family coverage, the limit will be $7,750, up from the 2022 $7,300 limit. Interestingly, these new limits are approximately 5.5% higher than 2022 contribution maximums, compared to a 1.4% increase between 2021 and 2022.
In the same Revenue Procedure, the IRS announced the following regarding minimum deductible and maximum out-of-pocket expense for high-deductible health plans (HDHPs) with HSAs:
- If two spouses with family coverage are aged 55 or older, they must have two HSA accounts in separate names if they both want to contribute a $1,000 catch-up contribution.
- If only one spouse is aged 55 or older, but the younger spouse contributes the full family contribution limit to the HSA in their name, the older person must open a separate account to make the $1,000 catch-up contribution.
- Account holders who exceed the contribution limit will face an annual 6% excise penalty tax on the excess amount unless it is withdrawn from the HSA before that year’s tax deadline.
| 2023 | 2022 | Change | |
|---|---|---|---|
| HSA contribution limit (employer and employee) | Self-only: $3,850 Family: $7,750 | Self-only: $3,650 Family: $7,300 | Self-only: +$200 Family: +$450 |
| HSA catch-up contributions (age 55 or older) | $1,000 | $1,000 | No change (set by statute) |
| HDHP minimum deductibles | Self-only: $1,500 Family: $3,000 | Self-only: $1,400 Family: $2,800 | Self-only: +$100 Family: +$200 |
| HDHP maximum out-of-pocket amounts (deductibles, co-payments, and other amounts, but not premiums) | Self-only: $7,500 Family: $15,000 | Self-only: $7,050 Family: $14,100 | Self-only: +$450 Family: +$900 |
| Source: IRS, Revenue Procedure 2022-24 | |||
2023 commuter benefits limits
The IRS has announced that next year pre-tax contributions to commuter benefits accounts will have a limit of $300 per month (up from $280 per month in 2022).
Sometimes referred to as qualified transportation fringe benefits, these perks allow employer-funded parking, vanpooling, and mass transit subsidies that are tax-exempt for employees. With their pre-tax income, employees may also pay their own mass transit, vanpooling, or parking costs through an employer-sponsored salary deferral program.
Staying up-to-date on benefits news can be simple
As an HR leader, your hands are full supporting your growing organization. Luckily, when you partner with a PEO like ExtensisHR, remaining knowledgeable about the latest benefits regulations doesn’t need to eat into your busy day.
A PEO’s benefits administration and management team can keep you on the pulse of updates and trends and provide you with access to comprehensive, Fortune 500-level plans that allow you to compete with larger corporations. When you leverage a PEO, you can take advantage of competitively priced benefits like:
- Medical, dental, and vision insurance with HSA options
- 401(k) retirement plans
- Life insurance and long-term care insurance
- Commuter benefit plans
- 529 Financial Plans
- Supplemental health insurance, including accident, critical illness, and hospital indemnity insurance
- Pet insurance
- Family-forming support
- And more
Are you ready to explore how a PEO can improve your organization’s benefits offering? Contact the professionals at ExtensisHR today.
