Last week, the Internal Revenue Service (IRS) released Rev. Proc. 2020-45, announcing the annual contribution limits and maximum carryover for Flexible Spending Accounts (FSAs) and contribution limits for qualified transportation benefits. In short, the amounts will remain the same for next year. Learn more about the 2021 FSA contribution limits and other updates below.
The 2021 FSA contribution limits will be $2,750 annually. The limit applies to health and limited purpose FSAs.
The annual contribution limit applies equally to single and married participants. As such, a married couple could have both spouses open an FSA and both contribute $2,750 individually ($5,500 total in benefits). Keep in mind, employers may choose to offer a lower contribution amount.
A health FSA can be used for a wide variety of out-of-pocket healthcare expenses, such as medications, co-pays, dental and vision expenses, and more. A limited purpose FSA, however, can only be used for dental and vision expenses.
Employers may offer a carryover provision to their FSA plans for unused funds. In 2021, the max FSA carryover is $550.
The carryover limit was increased earlier in 2020, from $500 to $550. Going forward, the limit will be indexed to 20 percent of the annual FSA contribution limit.
The employer must amend its plan to increase the carryover limit.
A person could carryover $550 from the previous year and elect the annual maximum of $2,750. This would give the FSA participant $3,300 total to spend on out-of-pocket expenses.
In addition to announcing FSA contribution limits, the IRS also posted the 2021 monthly limits for qualified transportation benefits. The 2021 limit remains at $270 per month.
Qualified transportation benefit accounts can cover expenses for transit passes, commuter vehicle fare, and parking fees associated with traveling to and from a person’s place of work.
In May 2020, the IRS announced annual contribution limits for Health Savings Accounts (HSAs).
Starting January 1, 2021, HSA owners may contribute:
The out-of-pocket maximums also go up, while the HDHP minimum deductibles will stay the same. Learn more about 2021 HSA contribution limits, out-of-pocket maximums, and minimum deductibles.
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