The Internal Revenue Service (IRS) published Rev. Proc. 2020-45, announcing annual limits for Flexible Spending Account (FSA) contributions, maximum carryover amounts, and Transportation benefit (Transit/Commuter/Parking) contribution limits. FSA, LPFSA, and related limits for 2021 will remain the same as they are for 2020. Learn more about 2021 FSA contribution limits and other updates below.
2021 FSA Contribution Limits
The annual maximum 2021 FSA contribution limits will be $2,750. This limit applies to health FSAs and Limited Purpose FSAs (LPFSAs).
Health FSAs can be used for a wide range of qualified out-of-pocket healthcare expenses. These can include over-the-counter and prescription medications, copays, vision and dental expenses, lab fees, therapy, and more.
Limited Purpose FSAs may be opened by people enrolled in a Health Savings Account (HSA). LPFSA eligible expenses are limited to vision and dental expenses.
2021 FSA Carryover Maximums
In addition to the 2021 FSA contribution limits, the annual maximum carryover amounts were also published. Health FSA and LPFSA participants may carry over a maximum of $550 in unused funds to the following year.
Earlier in 2020, the IRS published notice 2020-33 which updated the guidelines for FSA carryover. According to the notice, the maximum carryover amount is now indexed to 20 percent of the annual maximum election (it had previously been a $500 cap). Employers must amend their plans to allow for the carryover increase.
2021 Transportation Benefit Limits
Transportation benefit limits were also included in the IRS notice; the monthly limits remain at $270 for 2021. Section 132 plans include parking fees, commuter vehicle passes, and mass transportation fare.
2021 HSA Contribution Limits
In May 2020, the IRS published 2021 HSA contribution limits. Both the single coverage and family coverage annual limits will go up; catch up contribution limits for people age 55 and older remain the same at $1,000.
|Single Coverage||Family Coverage||Catch Up Contribution|
|2021||$3,600 (+ $50)||$7,200 (+ $100)||Limit + $1,000|
|2020||$3,550||$7,100||Limit + $1,000|
EBHRA Limits for 2021
The EBHRA maximum limits remain at $1,800 for plans starting in 2021. An Excepted Benefit HRA is funded solely by the employer. The benefits are used for “excepted benefits” such as dental and vision plan premiums, eligible expenses, long-term disability premiums, and COBRA, among others.
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