A flexible spending account (FSA) allows an employee to set aside a portion of their paycheck to pay for qualified medical, health and dependent expenses. Money placed into an FSA is not subject to payroll taxes, resulting in savings to the employee. The money not used in an FSA at the end of the year is lost to the employee.
A new 2013 contribution limit only allows employees to deposit a maximum of $2,500 into their account per tax year. Employer contributions to employee FSA accounts are not included in the $2,500 limit. The $2,500 limit does not apply for plan years that begin before 2013; therefore, if your company's plan year is July-June, the $2,500 limit will not begin until July 2013.
Some plans offer a grace period that gives you extra time to claim FSA money before losing it. The grace period might give you up to two months and 15 days after the end of the plan year. Unused contributions to the FSA for plan years beginning in 2012 or later that are carried over into the grace period for that plan year will not count against the $2,500 limit for the subsequent plan year.