If you were enrolled in a flexible spending account (FSA) in the past year or are thinking of going for one in 2022, then figuring out just how much you can put into your account will be pivotal for your annual healthcare spending plans.
Each year, the IRS sets the contribution limits for individuals opening an FSA. FSA limits were established with the enactment of the Affordable Care Act and are set to be indexed for inflation each year. As a result, the IRS has revised contribution limits for 2022.
The 2022 FSA contributions limit has been raised to $2,850 for employee contributions (compared to $2,750 in 2021). FSAs only have one limit for individual and family health plan participation, but if you and your spouse are lucky enough to each be offered an FSA at work, you can each elect the maximum for a combined household set aside of $5,700. And for plans with a carryover, the limit has increased to $570 for 2022 (compared to $550 in 2021). Continue reading for some more important notes on FSA limits.
2022 FSA Contribution Limits
Special rules/Deadline Extensions: There are 3 options for employers to to provide relief for FSA users who would otherwise have to forfeit leftover funds:
1. For FSA users with a carryover option, the carryover will allow FSA users with plan years ending in 2022 to move up to $570 of the previous plan year's contribution into next year's allocation (without counting against the overall contribution limit) to avoid forfeiting money at year's end.
- The Consolidated Appropriations Act (CAA) allowed for an optional, temporary increase of the carryover to include ALL remaining FSA funds at the end of 2021 into the next plan year, if allowed by the employer. So you may have remaining 2021 FSA funds left to spend in 2022.
- The FSA contribution limit does not include carryovers. If an employer offers a carryover of up to $550 in 2021, someone could have an FSA with $3,400 in it (or more) in 2022.
2. 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.
- The FSA Grace Period was also given a temporary, optional extension of time by the CAA. If offered by the employer, FSA holders could have up to a 12-month grace period for plan years ending in 2020 and 2021. If you had an FSA plan year that ended on December 31, 2021 and a 12 month grace period, you will have until December 31, 2022 to use those funds before they’re lost. It is important to note that not all FSA plans have a grace period, and if you do, these changes expire at the end of the 2022 plan year, at which point the grace period will revert back to 2.5 months.
3. The third can be combined with a carryover or a grace period, and is the FSA Run-out period, allowing up to 3 months after the end of the FSA plan year for account holders to continue to submit claims for reimbursement of eligible expenses they incurred during the plan year.
- Keep in mind that all deadline extensions are optional and at the discretion of the employer, and none have to be offered.
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. Eligible employees who work for employers who offer FSA plans may contribute up to the allowed maximum per year (the maximum for each plan could be less than the IRS allowed maximum). Self-employed individuals and owners of certain types of corporations are typically 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. Most FSAs come with a debit card function for use at the point of sale.
Change contributions? FSA users can typically only change their contributions during their open enrollment periods. Many 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.