Requires same limitation on public employee contributions to medical and dependent care flexible spending accounts as provided by federal law.

S3352

SENATE, No. 3352

STATE OF NEW JERSEY

222nd LEGISLATURE

�

INTRODUCED FEBRUARY 5, 2026

Sponsored by:

Senator� SHIRLEY K. TURNER

District 15 (Hunterdon and Mercer)

SYNOPSIS

���� Requires same limitation on public employee
contributions to medical and dependent care flexible spending accounts as
provided by federal law.�

CURRENT VERSION OF TEXT

���� As introduced.

��

An Act
concerning public employee contributions to medical and
dependent care flexible spending accounts and amending various parts of the
statutory law.

����
Be It
Enacted
by the Senate and General Assembly of
the State of New Jersey:

���� 1.� Section 7 of P.L.1996, c.8
(C.52:14-15.1a) is amended to read as follows:

���� 7.� Notwithstanding the
provisions of any other law to the contrary, the State Treasurer on behalf of
the State, and the governing body of an independent State authority, board,
commission, corporation, agency or organization may establish as an employer a
cafeteria plan for its employees pursuant to section 125 of the federal
Internal Revenue Code, 26 U.S.C. s.125, and shall establish such a plan for
medical or dental expenses not covered by a health benefits plan.� The plan
shall provide for a reduction in an employee's salary, through payroll
deductions or otherwise, in exchange for payment by the employer of medical or
dental expenses not covered by a health benefits plan, and may provide for a
reduction in an employee's salary, through payroll deductions or otherwise, in
exchange for payment by the employer of dependent care expenses as provided in
section 129 of the code, 26 U.S.C. s.129, and such other benefits as are
consistent with section 125 which are included under the plan.� The limitation
on the amount of any reduction in an employee�s salary for the purpose of
contributing to a flexible spending account as provided for by the plan shall
be the limitation as adjusted for inflation annually provided in section 125 of
the code, 26 U.S.C. s.125(i).� The limitation on the amount of any reduction in
an employee�s salary for the purpose of contributing to a dependent care
flexible spending account as provided for by the plan shall be the limitation
provided in section 129 of the code, 26 U.S.C. s.129(a).� The amount of any
reduction in an employee's salary for the purpose of contributing to the plan
shall continue to be treated as regular compensation for all other purposes,
including the calculation of pension contributions and the amount of any retirement
allowance, but, to the extent permitted by the federal Internal Revenue Code,
shall not be included in the computation of federal taxes withheld from the
employee's salary.

(cf: P.L.2011, c.78, s.53)

���� 2.� Section 44 of P.L.2007,
c.62 (C.18A:16-19.1) is amended to read as follows:

���� 44.� Notwithstanding the
provisions of any other law to the contrary, a board of education, or an agency
or instrumentality thereof, may establish as an employer a cafeteria plan for
its employees pursuant to section 125 of the federal Internal Revenue Code, 26
U.S.C. s.125, and shall establish such a plan for medical or dental expenses
not covered by a health benefits plan.� The plan shall provide for a reduction
in an employee's salary, through payroll deductions or otherwise, in exchange
for payment by the employer of medical or dental expenses not covered by a
health benefits plan, and may provide for a reduction in an employee's salary,
through payroll deductions or otherwise, in exchange for payment by the
employer of dependent care expenses as provided in section 129 of the code, 26
U.S.C. s.129, and such other benefits as are consistent with section 125 which
are included under the plan.� The limitation on the amount of any reduction in
an employee�s salary for the purpose of contributing to a flexible spending
account as provided for by the plan shall be the limitation as adjusted for
inflation annually provided in section 125 of the code, 26 U.S.C. s.125(i).�
The limitation on the amount of any reduction in an employee�s salary for the
purpose of contributing to a dependent care flexible spending account as
provided for by the plan shall be the limitation provided in section 129 of the
code, 26 U.S.C. s.129(a).� The amount of any reduction in an employee's salary
for the purpose of contributing to the plan shall continue to be treated as
regular compensation for all other purposes, including the calculation of
pension contributions and the amount of any retirement allowance, but, to the
extent permitted by the federal Internal Revenue Code, shall not be included in
the computation of federal taxes withheld from the employee's salary.

(cf: P.L.2011, c.78, s.51)

���� 3.� Section 45 of P.L.2007,
c.62 (C.40A:10-23.5) is amended to read as follows:

���� 45.� Notwithstanding the
provisions of any other law to the contrary, a local unit of government, or an
agency, board, commission, authority or instrumentality thereof, may establish
as an employer a cafeteria plan for its employees pursuant to section 125 of
the federal Internal Revenue Code, 26 U.S.C. s.125, and shall establish such a
plan for medical or dental expenses not covered by a health benefits plan.� The
plan shall provide for a reduction in an employee's salary, through payroll
deductions or otherwise, in exchange for payment by the employer of medical or
dental expenses not covered by a health benefits plan, and may provide for a
reduction in an employee's salary, through payroll deductions or otherwise, in
exchange for payment by the employer of dependent care expenses as provided in
section 129 of the code, 26 U.S.C. s.129, and such other benefits as are
consistent with section 125 which are included under the plan.� The limitation
on the amount of any reduction in an employee�s salary for the purpose of
contributing to a flexible spending account as provided for by the plan shall
be the limitation as adjusted for inflation annually provided in section 125 of
the code, 26 U.S.C. s.125(i).� The limitation on the amount of any reduction in
an employee�s salary for the purpose of contributing to a dependent care
flexible spending account as provided for by the plan shall be the limitation
provided in section 129 of the code, 26 U.S.C. s.129(a).� The amount of any
reduction in an employee's salary for the purpose of contributing to the plan
shall continue to be treated as regular compensation for all other purposes,
including the calculation of pension contributions and the amount of any
retirement allowance, but, to the extent permitted by the federal Internal
Revenue Code, shall not be included in the computation of federal taxes
withheld from the employee's salary.

(cf: P.L.2011, c.78, s.52)

���� 4.� This act shall take effect
immediately.

STATEMENT

���� This bill requires that the
limitation on the amount of any reduction in a public employee�s salary for the
purpose of contributing to a medical or dependent care flexible spending
account (FSA) must be the limitation provided in federal law.� This bill applies
to employees and employers of the State, local governments, and school
districts.

���� FSAs are benefit plans
established by employers to reimburse employees for health care expenses such
as deductibles, copayments, and unreimbursed medical expenses that would be
deductible under the Internal Revenue Code, but not for health insurance or long-term
care insurance premiums.� FSAs are usually funded by employees through �salary
reduction agreements,� although employers are permitted to contribute as well.�
The contributions to FSAs are tax-exempt under the federal income tax.

���� In 2010, the Affordable Care
Act limited the annual Medical FSA contribution to $2,500 commencing in 2013.�
Section 125 of the federal Internal Revenue Code, 26 U.S.C. s.125(i), was
amended in 2013 to provide an adjustment for inflation beginning in any taxable
income year after December 31, 2013.� For the taxable year beginning in 2025,
the dollar limitation provided under section 125(i) for Medical FSA
contributions is $3,300.� If this bill becomes law, then the limitation on a
public employee�s Medical FSA contributions will be adjusted as of the
effective date of this bill, and annually thereafter.

���� Section 129 of the federal
Internal Revenue Code, 26 U.S.C. s.129, sets the dollar limit on annual
contributions for Dependent Care FSAs.� Under section 129(a), the dollar limit
on annual Dependent Care FSA contributions is set to $7,500, or $3,750 in the
case of a separate tax return by a married individual.�