*Updated March 29, 2021
If you’re planning your tax-sheltered income for 2021, the IRS did not increase the $2,750 limit you can contribute to a health Flexible Spending Account (FSA). However, health savings account (HSA) participants will be able to contribute a little more in 2021.
What is the 2021 health FSA contribution limit?
The health FSA contribution limit will remain at $2,750 for 2021. However, carry over amounts have increased from $500 to $550 for any excess balance at the end of 2021 to be carried over into plan year 2022.
Employers may continue to impose their own dollar limit on employee salary reduction contributions to Health FSAs.
What is the 2021 dependent care FSA contribution limit?
The dependent care FSA contribution limit will remain at $5,000 for 2021.
What is the 2021 HSA contribution limit?
HSA limits for 2021 have increased to $3,600 for self-only coverage or $7,200 for family. Remember, you must have a qualifying high deductible health plan (HDHP) to be eligible for an HSA.
Are over-the-counter medicines eligible expenses under a Flexible Spending Account (FSA or Flex Spending)?
Yes, the CARES Act reversed a provision of the Affordable Care Act (ACA) that formerly required a prescription to purchase over-the-counter (OTC) medicines with pre-tax dollars. Now you can purchase OTC medicines and menstrual products with your qualifying HSA, FSA or HRA dollars.
*Are COVID-19 related expenses eligible for reimbursement under my tax free account (FSA, HSA, or HRA)?
Yes, the IRS announced in March 2021 that anything purchased as personal protective equipment (face masks, hand sanitizer, sanitizing wipes) for the primary purpose of preventing the spread of COVID-19 is considered a tax deductible medical expense. This means employees can claim comparable personal expenses with their FSA, HRA, or HSA dollars.
Can both my spouse and I contribute to our employers’ FSA plans?
If both you and your spouse are eligible to contribute to your employers’ health FSA plans, you may each contribute up to your employer’s FSA limit and potentially maximize the household health FSA limit of $5,500.
What is a dependent care FSA?
This type of FSA allows you to pay for dependent care expenses (such as elderly care of child daycare) with pre-tax dollars contributed into your account. The money can then be used tax-free, as long as you’re paying for an eligible expense.
What is a Flexible Spending Account (FSA or Flex Spending)?
Flexible spending allows you to set aside pre-tax dollars to apply to the upcoming calendar year’s out-of-pocket expenses related to eligible medical, dental, vision, pharmacy and dependent care. Each pay period, pre-tax money moves from your paycheck to your FSA account and lowers your taxable income. These pre-tax dollars can then be used to pay for qualifying expenses.
Per IRS guidelines, up to $550 of any unused dollars left in your FSA account at the end of the year can be rolled over and used in the subsequent year for eligible expenses. The rollover amount does not count towards your annual election limit. Any unused amount in excess of $550 will be forfeited.
Open enrollment is the only time, barring qualified life events, when eligible employees can enroll in FSA benefits for the upcoming calendar year. Flex spending dollars can be used in addition to your other insurance plans.
Click here to see the comprehensive IRS list of qualifying FSA expenses.
What is a Health Savings Account (HSA)?
An HSA is similar to an FSA in that it lowers your taxable income and is used to pay for eligible health care expenses. The differences between an HSA and FSA are:
- HSA has a higher maximum annual contribution ($3,600 for 2021).
- Money in your HSA accrues from year to year like a bank account and earns interest.
- Your HSA contribution can be changed throughout the calendar year.
- You must be enrolled in a Qualified High Deductible Health Plan (HDHP) to contribute to an HSA.
If you participate in an HSA, you can only participate in an FSA if it’s a limited-purpose FSA. This means you can only use FSA dollars for dental, vision, and OTC expenses not covered by your health plan.
While the 2021 FSA contribution limit will not change from $2,750, the FSA rollover amount and HSA contribution limits have both increased.
For more information about FSAs, HSAs, open enrollment, or any other benefit-related question, please contact our benefits team at email@example.com.