Federal Issue Brief

 H.R. 682 Dependent Care Flexible Spending Accounts

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AVMA Position:

Support

Summary:

H.R. 682, sponsored by James Sensenbrenner, (R-WI-5), amends the Internal Revenue Code of 1986 to increase the contribution limits to dependent care flexible spending accounts and to provide for a carryover of unused dependent care benefits.

Background:

  • H.R. 682 amends IRC to increase the contribution limits to dependent care flexible spending accounts and to provide for a carryover of unused dependent care benefits.
  • The legislation would allow a maximum annual benefit of $3,750 ($7,500 for married couples filing a joint tax return) for a dependent care flexible spending arrangement; and allow a carryover of unused dependent care benefits in tax-exempt cafeteria plans and flexible spending arrangements into the next plan year.
  • Currently employers determine the limits on FSA contributions, although a provision in the Patient Protection and Affordable Care Act will cap annual FSA contributions at $2,500 beginning in 2013, with adjustments for inflation thereafter.
  • An FSA impacts taxable income -- if an employee earns $50,000/year and contributes $4,000 to an FSA for health-care expenses, they reduce their taxable income to $46,000.
  • At a 25% marginal tax rate, that will save $1,000 in income taxes. As of 2010, about 33 million U.S. workers, or 20%, used FSAs, according to Hewitt Associates.

Justification:

  • AVMA has a record of supporting legislation to allow up to $500 of unused money in FSAs to be permanently carried over to subsequent plan years (HR 544, 111th Congress) and a bill that would allow an exclusion from the gross income of an employee of up to $7,500 ($10,000 for employees with one or more dependents) for employer contributions to a flexible spending arrangement (S. 988, 111th Congress).

Current Status:

Referred to Ways and Means

AVMA Contact:

Gina Luke, Assistant Director, Governmental Relations Division, 202-289-3204