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How much can you set aside in your FSA for 2021? That question was answered this week when the IRS released the 2021 cost of living adjustments for various employer-sponsored retirement, health and welfare plans this week.
For flexible spending account (FSA) users, this is a key piece of information to know during open enrollment season as they calculate estimated medical spending for 2021. Contribution limits are adjusted for inflation on a yearly basis, and while in recent years these limits saw modest gains, most of these plans should see little changes for the coming year.
Here's what FSA users need to know for 2021:
1. The $2,750 limit for 2021 applies on a per FSA account basis and could be less than $2,750 if your employer chooses
What this means: $2,750 is the IRS max you can elect for your FSA in 2021, but if you switch jobs mid-year, regardless of claims incurred, you can start fresh with a new FSA with your new employer. Employers can assign a lesser maximum than $2,750 if they choose to.
2. The FSA limit is the same for those participating in the health plan as single as it is for those participating as family
What this means: FSAs only have one contribution limit! Whereas HSA maximum contributions are based on individual/family plan participation, your FSA limit remains the same regardless of how many dependents are on your health plan.
3. Spouses can each elect their own FSA through their respective employers
What this means: $2,750 is the limit per FSA account, but if you and your spouse both elect FSAs through your employers, your total household FSA budget for 2021 could be $5,500.
4. The FSA carryover limit for 2020-2021 was increased to $550 earlier this year in a Notice from the IRS
What this means: Employers have the option of offering one (but not both) of a $550 rollover or 2.5 month grace period deadline extension for their FSA users. This year saw the first increase in the total rollover amount, which was raised from $500 to $550.
5. The FSA maximum contribution limit does not include rollovers
What this means: The rollover does not count against your 2021 contribution limit. So if you roll over $550 into next year's allocation, you'll have a total of $3,300 to spend on qualifying medical expenses.\
6. Limits only apply to pre-tax employee contributions
What this means: If you're lucky enough to have an employer who will contribute to your FSA on a yearly basis, that won't count against your yearly contribution limit! The $2,750 figure puts a limit on how much you can contribute to your account through pre-tax payroll deductions throughout the year. Employers can supplement that if they so choose.
2021 is gearing up to be a pivotal one for consumer healthcare, and thankfully there is one less change to worry about on the health and benefits front with FSA contribution limits remaining the same for the coming year.