Note: The following article is an update to our annual FSA Contribution Limit post and includes excerpts from our previous blog titled, IRS Releases FSA Contribution Limits for 2021.
On November 10, 2021, the Internal Revenue Service (IRS) announced annual cost-of-living adjustments affecting the maximum contribution limits for several pre-tax benefits, including health flexible spending accounts (health FSAs) and transit/parking accounts.
In Revenue Procedure 2021-45, the IRS confirmed that for plan years beginning on or after Jan. 1, 2022, the contribution limit for health FSAs will increase to $2,850. For those plans that allow a rollover of unused funds, the maximum rollover amount will increase by $20 to $570 for 2022.
Additionally, the monthly contribution and reimbursement limit for transit and parking FSAs will increase by $10 to $280 per account in 2022.
The 2022 limit for health savings accounts (HSAs) was previously announced in Revenue Procedure 2021-25. Please see the chart below for a summary of these changes for the new year.
Remember, FSA funds are meant to be used within a plan year. Generally, the plan year must be a fixed 12-month period. Keep in mind that health FSAs have a “use-or-lose” rule, “meaning that any funds left unused at the end of the year are forfeited to the employer.”
There are two exceptions to this rule permitted by the IRS: rollover and grace period. If funds are not used by the end of the year, up to $570 can be rolled over from the 2022 plan year into the next plan year. Alternatively, an employer can adopt a grace period for their health FSA. As explained by the IRS, “a grace period is a period of up to two months and 15 days immediately following the end of a plan year during which a participant may use amounts remaining from the previous plan year (including amounts remaining in a health FSA) to pay expenses incurred for certain qualified benefits during that two-month and 15-day period.” A health FSA may incorporate either of these features, however, a plan may not have both a rollover and grace period.
Additionally, plans may also include run-out periods that provide participants additional time to submit claims incurred during the plan year (typically 90 days). This can be in addition to either a rollover or grace period.
For additional FSA facts, read our previous blog titled, “Is an FSA Worth it for Your Small Business,” by clicking here.
If you’re looking for additional ways to spend unused FSA dollars before the end of the plan year, click the following link to read our recent blog titled “December 31 Deadline: How to Spend Your Health FSA Money Before You Lose It.”
How can PrimePay help?
PrimePay provides administration of pre-tax benefits, including HRAs, HSAs, and FSAs. When you choose PrimePay’s pre-tax benefit plan administration, you receive a dedicated service team, access to our support portal, automated claims processing, and a PrimePay debit card and mobile app. Click here to learn more.
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