2023 reimbursement limits and Social Security wage caps announced
The Internal Revenue Service (IRS) announced annual inflation adjustments for many tax provisions. These increases are effective for plan years beginning January 1, 2023 and later.
Healthcare Flexible Spending Account (HCFSA) and Limited Purpose Flexible Spending Account (LPFSA):
|
2022 |
2023 |
| $2,850 | $3,050 |
HCFSA Carryover:
|
2022 |
2023 |
| $570 | $610 |
Dependent Care Account (DCA):
Annual limits will remain $5,000 for single taxpayers and married couples filing jointly, or $2,500 for married people filing separately.
Health Savings Account (HSA):
As a reminder, below are the HSA contribution limits, along with the High Deductible Health Plan (HDHP) requirements announced earlier this year.
| 2022 | 2023 | |
| Annual Limitation on HSA Deductions | ||
| Self-Coverage | $3,650 | $3,850 |
| Family Coverage | $7,300 | $7,750 |
| HDHP — Self-Only Coverage | ||
| Deductible not less than | $1,400 | $1,500 |
| Out-of-pocket expenses max | $7,050 | $7,500 |
| HDHP — Family Coverage | ||
| Deductible not less than | $2,800 | $3,000 |
| Out-of-pocket expenses max | $14,100 | $15,000 |
Social Security Wage Cap
On October 13, 2022, the Social Security Administration (SSA) announced that the maximum earnings subject to the Social Security payroll tax (the “taxable maximum”) will increase from $147,000 in 2022 to $160,200 beginning on January 1, 2023. The taxable maximum is subject to adjustment every year based on increases in the national average wage index. With the average wages increasing, the taxable maximum has increased significantly over the past few years—in 2017, the taxable maximum was $127,200. Wages earned above the taxable maximum are not subject to Social Security payroll taxes; therefore, with the increases in the taxable maximum year over year, a larger portion of employees’ wages are subject to the Social Security payroll tax than ever before.
What does this mean for employers?
Now is the time to ensure your payroll processes will be updated to reflect the higher taxable maximum beginning in January 2023. Additionally, in some states that offer Paid Family and Medical Leave Insurance (PFMLI) programs, employee wages that are subject to contributions are capped at the Social Security taxable maximum. Therefore, employers in those states should also adjust their payroll processes to reflect the increase in the taxable maximum and its effect on PFMLI employee contributions.
What does this mean for employees?
Those employees that make $147,000 or less per year will not see any differences in their net pay from the increase in the taxable maximum. Those employees who make more than $147,000 per year, however, will be subject to Social Security payroll withholdings for a larger portion of their total income (up to $160,200), and they may see a slight decrease in their net pay. Before these changes take effect, employers should notify affected employees to avoid surprises when employees begin receiving paychecks in 2023.
If you have any questions or need help communicating these changes to employees, please contact us. We'll continue to monitor and communicate regulatory changes to help you succeed in benefits management.
This blog is up to date as of November 2022 and has not been updated for changes in the law, administration or current events.