It's that time again! Now that open enrollment periods are underway, it's the one time a year that employees can make important benefits changes for the year ahead. If you were enrolled in a flexible spending account (FSA) in the past year or are thinking of going for one in 2020, knowing just how much you can put into your account is pivotal for your annual health spending plans.
Each year, the Internal Revenue Service sets the contribution limits for individuals opening an FSA and married couples filing jointly. In 2019, the individual limit for FSA contributions was $2,700, but the IRS is raising the limit for 2020 to $2,750. Check below for the information you'll need to make an informed decision for the coming year.
2020 FSA Contribution Limits
Yearly Contribution Limits: $2,750 per FSA. If both spouses have an FSA through their respective employers, they could each elect the maximum for $5,500 per household.
Plan Year: Most often one (1) year. In limited circumstances, there may be a shorter plan year.
Eligibility to Contribute: FSAs can only be sponsored by employers and eligibility rules are set by each plan. Employees who work for employers who offer FSA plans may contribute up to the allowed maximum per year. Self-employed individuals and owners of certain types of corporations are not eligible for an FSA.
Account Ownership: An FSA is owned and set up by the employer.
Access to Money: An employee's yearly FSA allocation is available in full on the first day of the plan year, regardless of contributions to date.
Change Contributions? FSA users can only change their contributions during their open enrollment periods. Some plans also allow changes to contributions to be made if the account holder experiences a qualifying life event, such as marriage, divorce, or birth of child.
Special Rules/Eligibility Exceptions: Employers can choose one of two (or none) options to provide relief for FSA users who would otherwise have to forfeit leftover funds:
- The $500 rollover allows FSA users to move up to $500 of the previous plan year's contribution into next year's allocation (without counting against the overall contribution limit) to avoid forfeiting money to their employers at year's end.
- The second is the FSA Grace Period, which gives users 2.5 months after the last day of their plan years to spend down their remaining FSA funds. For more information about what an FSA can cover, visit the FSA Eligibility List.
Some additional things to consider
- The 2020 limit applies on a per plan basis regardless of single vs. family, so the max is $2,750 per FSA plan. If spouses both work for companies which offer an FSA, they could each enroll in their employer's FSA and contribute the maximum amount.
- The max is for pre-tax employee contributions only. Employers could choose to contribute in excess of the $2,750 if they choose.
- The FSA rollover of up to $500, if permitted, does not count towards the max. If someone rolled over $500 this year and elected $2,750 for next year, they could have a full account balance of $3,250 in 2020.
- Learn more from IRS Revenue Procedure 2019-44.