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IRS Contribution Limits (2024 Update)

Each year the IRS announces updates to contribution limits for Flexible Spending Accounts (FSA), Health Savings Accounts (HSA), Health Reimbursement Arrangements (HRA), and other tax-advantaged accounts. Here’s a look at what’s changing:

LIMIT CATEGORY 2024 LIMITS 2023 LIMITS
Health FSA: Max Contribution Limit $3,200 $3,050
Health FSA: Rollover Max $640 $610
DCFSA: Max Contribution Limit $2500 / $5000 $2,500 / $5,000
HSA: Max Contribution Limit $4,150 Self-Only
$8,300 Family		 $3,850 Self-Only
$7,750 Family
HSA: Catch-Up Contribution Limit $1000 $1000
HSA: HDHP Out-of-Pocket Max $8,050 Self-Only
$16,100 Family		 $7,500 Self-Only
$15,000 Family
HSA: HDHP Minimum Annual Deductible $1,600 Self-Only
$3,200 Family		 $1,500 Self-Only
$3,000 Family
Commuter Reimbursement: Parking $315 $300/month
Commuter Reimbursement: Transit $315 $300/month

Health Plan Prescription Drug Reporting Mandate (RxDC)

The Consolidated Appropriations Act (CAA) requires self-funded group health plans and fully insured health plans to report specific data about prescription drug pricing (including prescription drug rebates) and healthcare spending to the federal government starting on December 27, 2022.

The federal government is seeking to collect and track information about:

  • Premiums and Life Years – Premiums include all money paid for plan coverage, whether by employees, dependents, or the employer. This amount includes fees or any other contributions associated with the coverage.
  • Spending by Category – This reporting requirement primarily relates to medical benefits, not prescription drugs offered under the prescription drug portion of the plan.
  • Top 50 Most Frequent Brand Drugs – This requires mandated reporting about the brand name drugs most frequently dispensed during the reporting year.
  • Top 50 Most Costly Drugs – These should be tracked and measured for the reporting year.
  • Top 50 Drugs by Spending Increase – This reporting category highlights apples-to-apples RX spending compared to the prior year.
  • Rx Totals – These are comprehensive gross payments under the plan or policy for the year.
  • Rx Rebates by Therapeutic Class
  • Rx Rebates for the Top 25 Drugs – This reporting element spotlights the 25 drugs with the highest rebate amounts.

Fully insured and self-funded group health plans, including governmental plans and church plans, must complete the RxDC filings. Filings are not required for account-based plans (such as health reimbursement arrangements) or excepted benefit plans (like stand-alone dental/vision plans or short-term limited-duration insurance).

The insurance carriers are legally responsible for the filings for their fully insured plans.

Fully-insured employers may contract with their insurance carriers to provide prescription drug reporting on their behalf. Contracting should be straightforward and likely does not present a special challenge apart from the need to explicitly contract with the carrier. For self-funded plans, plan sponsors must ensure the filings are completed by the appropriate plan vendors.

Organizations that sponsor self-funded health insurance plans can submit the necessary data themselves or work with their plan third-party administrator (TPA) or another third party such as a Pharmacy Benefit Manager (PBM) to report the required data. If an organization decides to work with the TPA, PBM or another third party, there should be a written agreement with the TPA, third party or PBM that should detail the information being reported. For example, a self-funded organization may work with both a TPA and a PBM, both of which have some of the required data, but not all. It will be important to know who is reporting what information to make certain all the required data is submitted.

Additionally, self-funded organizations may have data that the entities reporting on their behalf do not have access to. These organizations will need to ensure they are providing the reporting entity with any required information. Organizations that work with more than one third party to administer their health insurance should ensure that all the required data is being reported.

Unlike fully insured entities, organizations that sponsor self-funded health insurance are liable for any failures to report data, even if a third party was supposed to report the data on their behalf.

The deadline to submit 2020 and 2021 data is December 27, 2022. Thereafter, the data must be submitted annually every June 1. The data will be formatted on a “reference year” or calendar year basis. For example, June 1, 2023, is the deadline for submitting 2022 data while June 1, 2024, is the deadline for submitting 2023 data.

Wellness Programs and Incentives

Federal regulations are complex – understand the rules for “participatory” and “health-contingent” wellness programs and related incentives

Many employers offer wellness programs to support employees and their family members in improving their health. In addition to encouraging a culture of health, these programs are designed to reduce health care costs for both employees and the company.

The current trend in wellness programs is toward health-contingent programs that reward employees for outcomes such as smoking cessation, weight loss, and managing chronic conditions like diabetes and high blood pressure and cholesterol.

A consistent set of wellness program and incentive limit rules were adopted under the Affordable Care Act (ACA) by the Department of Labor (DOL), Health and Human Services (HHS), and the Internal Revenue Service (IRS) and made effective January 1, 2014. The regulations focus on:

  • Two types of wellness programs: participatory and health-contingent (activity-only or outcome-based)
  • Requiring reasonable alternatives in health-contingent programs so everyone has the opportunity to earn the full reward
  • Establishing the value of incentives that can be awarded for some types of programs
  • Requiring employers to offer the opportunity to earn incentives at least once per year

Other wellness program rules and regulations

The ACA rules are just one set of federal regulations that impact employer wellness programs. Rules adopted in 2016 by the fourth agency, the Equal Employment Opportunity Commission (EEOC), under the Americans with Disabilities Act (ADA) and Genetic Information Nondiscrimination Act (GINA) also need to be considered by employers when designing wellness programs.

The incentive limits in EEOC’s 2016 rules were challenged by the American Association of Retired Persons (AARP) as being too high and potentially coercive. The D.C. District Court found the limits to be insufficiently justified, and issued an order to vacate the rules on January 1, 2019 if clarification or new rules were not issued. The EEOC has formally removed incentive limits from ADA and GINA, but has not provided insight on an anticipated date for new rules. ADA and GINA incentive limits are no longer effective as of January 1, 2019. It is important to note that the remaining sections of the ADA and GINA rules (e.g., ADA’s reasonable accommodations and GINA’s limited use of collecting genetic information) remain in effect.

Americans with Disabilities Act (ADA)

Under the ADA regulations, employers are allowed to ask disability-related questions and conduct medical exams for voluntary wellness programs that promote health or wellness. There are several key differences between the ACA and the ADA:

  • Reasonable accommodations must be provided if an employee is unable to complete part or all of a wellness program for disability-related reasons (a reasonable alternative under the ACA can be considered a form of reasonable accommodation under the ADA)
  • Employers may only receive information from wellness programs in aggregate, any individually identifiable information received is considered PHI
  • Privacy notices describing the handling of medical information, and procedures for safeguarding information privacy must be distributed to all wellness program participants
ADA safe harbor not applicable

The statutory text of the ADA provides a safe harbor that allows medical inquiries and examinations to be conducted in connection with a “bona fide benefit plan.” This statutory language has been interpreted to include employer-sponsored wellness programs within that safe harbor, and the courts have agreed.* The final ADA regulations clearly state that the “bona fide benefit plan” safe harbor does not apply to rewards and penalties offered in connection with an employer’s wellness program that includes disability-related inquiries or medical examinations, and go on to state that the EEOC does not agree with the outcome of the cases on this issue.

Genetic Information Nondiscrimination Act (GINA)

Under GINA, employers may solicit genetic information from the employee as part of a wellness program, so long as it is made clear that disclosing this information is voluntary.

Other key differences between GINA and ACA include:

  • Limits use of genetic health information collected through a wellness program
  • Regulates sharing of health information collected from spouses
  • Prohibits health and genetic information collection from employees’ children
  • Prohibits the sale of genetic information provided through a wellness program to other vendors

In combination, it is clear that compliance with one set of regulations does not necessarily ensure compliance with all the others. Employers should review their wellness programs and incentives against all regulations, and consult with their current carrier and broker for more information.

No Surprises Act

On Dec. 27, 2020, Congress passed, and President Trump signed, the No Surprises Act as part of the Appropriations bill. The No Surprises Act, which is a law not guidance, goes into effect for plan or policy years beginning on or after Jan. 1, 2022.

The surprise billing legislation establishes federal standards to protect patients from balance billing for defined items and services provided by specified doctors, hospitals and air ambulance carriers on an out-of-network basis. The federal law applies to individual, small group, and large group fully insured markets and self-insured group plans including grandfathered plans. The legislation caps patient cost-sharing for out-of-network items and services at in-network levels and requires providers to work with insurers and health plans to negotiate remaining bills. If the insurer/health plan and the provider are unable to reach agreement, an Independent Dispute Resolution (IDR) process, sometimes called arbitration, was established to determine the reimbursement amount.

There are federal rules and processes yet to be developed, and questions about scope and applicability as it relates to state laws still to be answered. We will continue to update our customers as more is known.

2020 Employer Mandate

Employers must offer health insurance or pay a penalty

Employer mandate overview

Employers must offer health insurance that is affordable and provides minimum value to 95% of their full-time employees and their children up to the end of the month in which they turn age 26, or be subject to penalties. This is known as the employer mandate. It applies to employers with 50* or more full-time employees, and/or full-time equivalents (FTEs). Employees who work 30 or more hours per week are considered full-time.

Employer mandate requirements

Affordable coverage

Coverage is considered “affordable” if employee contributions for employee-only coverage do not exceed a certain percentage of an employee’s household income (9.86% in 2019 and 9.78% in 2020).

Based on IRS safe harbors, coverage is affordable if the cost of self-only coverage is less than the indexed percentage of the following:

  • Employee’s W-2 wages (reduced by any salary reductions under a 401(k) plan or cafeteria plan)
  • Employee’s monthly wages (hourly rate x 130 hours per month),
    OR
  • Federal Poverty Level for a single individual

In applying wellness incentives to the employee contributions used to determine affordability, assume that each employee earns all wellness incentives related to tobacco use, but no other wellness incentives.

Minimum value

A plan provides “minimum value” if it pays at least 60% of the cost of covered services (deductibles, copays and coinsurance). The U.S. Department of Health & Human Services has developed a minimum value calculator that can be used to determine if a plan provides minimum value.

Employer mandate penalties

This graphic summarizes the coverage requirements and the penalties that apply if any full-time employee purchases coverage on the Marketplace and receives a federal premium subsidy.

Overview of the coverage requirements and the penalties that apply if any full-time employee purchases coverage on the Marketplace and receives a federal premium subsidy.

Additional details on the Employer Mandate

Employer mandate coverage requirements since 2016

Employers with 50 or more full-time and/or FTE employees must offer affordable/minimum value medical coverage to their full-time employees and their dependents up to the end of the month in which they turn age 26, or they may be subject to penalties. The amount of the penalty depends on whether or not the employer offers coverage to at least 95% of its full-time employees and their dependents.

  • Employers who fail to offer coverage to at least 95% of full-time employees and dependents may be subject to a penalty of $2,320 per full-time employee minus the first 30.
  • Employers who offer coverage may still be subject to a penalty if the coverage is not affordable or does not provide minimum value. This penalty is the lesser of either $3,480 per full-time employee receiving a federal subsidy for coverage purchased on the Marketplace, or $2,320 per full-time employee minus the first 30.

Employers must treat all employees who average 30 hours a week as full-time employees.

Dependents include children up to age 26, excluding stepchildren and foster children. At least one medical plan option must offer coverage for children through the end of the month in which they reach age 26. Spouses are not considered dependents in the legislation, so employers are not required to offer coverage to spouses.

Examples of the requirement to cover 95% of full-time employees

Assume each employer has 1,000 full-time employees who work at least 30 hours per week.

  • Employer 1 currently offers medical coverage to all 1,000 and their dependents. The company is considered to offer coverage since it offers coverage to more than 95% of its full-time employees and their dependents.
  • Employer 2 currently offers medical coverage to 800 full-time employees and their dependents. The company will need to offer coverage to 150 more full-time employees and their dependents to meet the 95% requirement to be treated as offering coverage.
  • Employer 3 has 500 full-time, salaried employees who are offered coverage and 500 full-time hourly employees who are not offered coverage. The company will need to offer coverage to at least 450 hourly employees (and their dependents) to meet the 95% requirement to be treated as offering coverage.
  • Employer 4 offers coverage to 950 full-time employees and their dependents. Only 600 of those employees actually enroll in coverage. The company is compliant no matter how many employees actually enroll in affordable coverage that offers minimum value.
Determining how many full-time employees an employer has

The regulations allow various calculation methods for determining full-time equivalent status. Because these calculations can be complex, employers should consult with their legal counsel.

  • Full-time employees work an average of 30 hours per week or 130 hours per calendar month, including vacation and paid leaves of absence.
  • Part-time employees’ hours are used to determine the number of full-time equivalent employees for purposes of determining whether the employer mandate applies.
  • FTE employees are determined by taking the number of hours worked in a month by part-time employees, or those working fewer than 30 hours per week, and dividing by 120.
Counting part-time and seasonal employees

Here are some considerations to help determine how part-time and seasonal employees equate to full-time and FTE employees.

  • Only employees working in the United States are counted.
  • Volunteer workers for government and tax-exempt entities, such as firefighters and emergency responders, are not considered full-time employees.
  • Teachers and other education employees are considered full-time employees even if they don’t work full-time year-round.
  • Seasonal employees who typically work six months or less are not considered full-time employees. This includes retail workers employed exclusively during holiday seasons.
  • Schools with adjunct faculty may credit 21/4 hours of service per week for each hour of teaching or classroom time.
  • Hours worked by students in federal or state-sponsored work-study programs will not be counted in determining if they are full-time employees.
Waiting periods to become eligible for coverage

Employers may not impose enrollment waiting periods that exceed 90 days for all plans beginning on or after January 1, 2014. Shorter waiting periods are allowed. Coverage must begin no later than the 91st day after the hire date. All calendar days, including weekends and holidays, are counted in determining the 90-day period.

Plans subject to the employer mandate

U.S.-issued expatriate plans meet the employer mandate.

Effective July 16, 2014, the employer mandate no longer applies to insured plans issued in the U.S. territories (Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa and the Northern Mariana Islands). A territory may enact a comparable provision under its own law.

Employer mandate reporting

All applicable large employers are required to file an annual report that ensures compliance with the employer mandate. The reporting will include information on all employees who were offered and accepted coverage, and the cost of that coverage on a month-by-month basis.

What happens if an employee receives subsidized coverage

Each year, public Marketplaces should send notices to employers that may owe a penalty for not complying with the employer mandate. These notices will alert employers if any of their employees received a subsidy through the Marketplace.

Employers that receive these notices will have 90 days to file an appeal if they believe the eligibility determination was made in error. It’s important that employers maintain documentation and records to provide proof of compliance with the employer mandate.

Read more about the employer notice process from the Centers for Medicare and Medicaid Services.

Employer mandate penalty amounts and processes

Examples of employer penalties
The employer does not offer coverage to full-time employees
The penalty is $2,320 per full-time employee, excluding the first 30 employees. This example shows how the penalty would be calculated.
Employer Trigger Penalty
500 full-time employees

No coverage offered

 One employee purchases coverage on the Marketplace and is eligible for a federal premium subsidy $2,320 per full-time employee, minus the first 30 employees

500 – 30 = 470 employees

470 x $2,320 = $1,090,400 penalty
The employer offers coverage that does not meet the minimum value and affordability requirements

The penalty is the lesser of the two results, as shown in this example.

Employer Trigger Penalty
1,200 full-time employees

Employer offers coverage, but coverage is not affordable and/or doesn’t provide minimum value

 The penalty is triggered if one employee purchases coverage on the Marketplace and receives a federal premium subsidy

250 employees purchase coverage on the Marketplace and are eligible for a subsidy

 Lesser of $2,320 per full-time employee, minus the first 30 employees, OR $3,480 per full-time employee receiving a federal premium subsidy

1,170 x $2,320 = $2,714,400 penalty

250 x $3,480 = $870,000 penalty (lesser penalty applies)
Penalty assessment process

Here is a snapshot of the penalty assessment process:

Employer offers health coverage compliant with the employer mandate

  • The Marketplace should notify the employer if an employee receives subsidized coverage during this same plan year
  • Employer may gather facts for response or file an appeal within 90 days of Marketplace notification
Employer reports coverage offer and respective data during the applicable tax season
Marketplace reports Minimum Essential Coverage data on employees, including subsidy information
IRS sends Letter 226J, with an Employer Shared Responsibility Payment assessment based on the data they have processed

  • Employer sends Form 14764 (response to Letter 226J) with Form 14765 (lists employees receiving subsidized coverage) and any updated or corrected data to previously reported Forms 1095-C
IRS sends Notice 220J, confirming the final penalty amounts owed, which could state no amount is owed after final audit review.
How an employer will know if a penalty has been assessed

If an employee receives subsidized coverage, the employer should be notified by the public Marketplace. The employer will then be provided an opportunity to respond and appeal if the employee was offered coverage that meets the minimum value and affordability standards.

Once the IRS has received individual tax returns and employer reporting for a given calendar year, it may determine that an employer did not meet its employer mandate requirements and is subject to a financial penalty, known as the Employer Shared Responsibility Payment (ESRP). The IRS will send the employer an IRS Letter 226J.

How an employer can appeal a penalty assessment

Any employer who receives a 226J letter should take immediate action to respond to the IRS. The employer has 30 days to respond with documentation and corrected reporting data (if applicable). Doing this may help the employer reduce or eliminate the ESRP assessed.

After the employer responds with documentation of corrected data previously reported on the Forms 1095-C, the IRS will complete their review and send a Notice 220J to the employer. This notice confirms the final penalty amounts being charged, by month. The Notice 220J may also indicate that no penalty is being charged based on the IRS’s review of any data or documentation provided by the employer in response to the initial Letter 226J.

Read more about employers’ options on the IRS web page, Employer Shared Responsibility Payment Q&As, questions 55-58.

How penalties apply to companies with a common owner

Companies that have a common owner are combined for purposes of determining whether they are subject to the mandate. However, any penalties would be the responsibility of each individual company.

* Before January 2016, employers with 50-99 employees were not required to offer coverage, and employers with 100 or more complied if they offered coverage to at least 70% of their full-time or FTE employees.