2021 FSA Contribution Limits, Max Carryover Announced by IRS

2021 FSA Contribution Limits

On Monday, October 26, the Internal Revenue Service (IRS) published Rev. Proc. 2020-45, announcing the 2021 annual contribution limits for Flexible Spending Accounts (FSAs), maximum carryover amounts, and contribution limits for Transportation benefits. Next year, the limits will remain the same for FSAs and Transit/Commuter/Parking benefits. Learn more about the 2021 FSA contribution limits and other announcements below.

2021 FSA Contribution Limits

The annual maximum 2021 FSA contribution limit will stay at $2,750; no change from 2020. The annual limit applies to Health FSAs and Limited Purpose FSAs.

Whether a person is single or married, the FSA limit applies to individual accounts. Therefore, a married couple could each participate in an FSA, allowing both spouses to contribute $2,750 for a combined total of $5,500 in benefits.

A health FSA can be used for out-of-pocket healthcare expenses, such as co-pays, dental and vision expenses, medications (OTC and prescription), first aid supplies, and much more. The restriction on OTC medications was lifted in 2020 with the passage of the CARES Act.

A limited purpose FSA (also called an LPFSA) is restricted to qualified dental and vision expenses. An LPFSA may be opened by a person who is also enrolled in a Health Savings Account (HSA).

2021 Max FSA Carryover Limits

The maximum carryover limits for FSAs will also stay the same, remaining at $550. The limit was increased earlier in 2020, in accordance with IRS Notice 2020-33. This was the first FSA carryover limit increase since 2013. Going forward, the carryover limits will be indexed to 20 percent of the maximum annual election.

To allow for the carryover increase, employers must amend their plans.

2021 Limits for Qualified Transportation Benefits

Under section 132, qualified transportation benefits include transit fare, mass commuter passes, and parking expenses related to commuting to a person’s place of work.

The monthly limit for these benefits will remain at $270.

HSA Contribution Limits for 2021

The IRS published the annual contribution limits for Health Savings Accounts in May 2020. For 2021, a person with self-only coverage can contribute up to $3,600; a person with family coverage can contribute a maximum of $7,200.

Learn more about the 2021 HSA contribution limits, out-of-pocket maximums, and the minimum annual deductibles.

DataPath Administrative Services offers tax-advantaged benefits administration services for FSA, HRA, HSA, COBRA and more.



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