The IRS announced that the annual contribution limit for health care flexible spending accounts (health FSAs) will increase to $2,850 for 2022 (from $2,750) and the maximum carryover amount will rise to $570 (from $550).
Health FSAs
The chart below shows the adjustment in health FSA contribution limits for 2022. Employers may set lower limits for their workers.
| Health Flexible Spending Accounts (Includes limited-purpose FSAs) |
2022 | 2021 | Change |
| Maximum salary deferral contribution | $2,850 | $2,750 | +100 |
| Maximum carryover amount
*The Consolidated Appropriations Act, 2021, allowed unlimited carryovers of health FSA balances into the next plan year for plan year 2021. |
$570 | $550 (as indexed, but carryover of full unused balance allowed)* | +20 |
| Source: IRS Revenue Procedure 2021-45. |
The limit also applies to limited-purpose FSAs that are restricted to dental and vision care services, which can be used in tandem with health savings accounts (HSAs).
A LATE NOTICE
When benefit plan limits for the upcoming year are released after open enrollment periods have begun, employers have the option to keep the previous year’s limits in place for ease of administration or adjust their systems to accept the higher limit for 2022. Employers who adjust their systems must communicate this change to their employees so that they can take the full advantage of their FSAs. Always check with your FSA plan administrator for any necessary paperwork required, if you choose to keep the previous year’s limit.
Dependent Care FSAs
A dependent care FSA (DC-FSA) is a pretax benefit account used to pay for dependent care services such as day care, preschool, summer camps and non-employer-sponsored before or after school programs. Funds may be used for expenses relating to children under the age of 13 or incapable of self-care who live with the account holder more than half the year. These plans also may be referred to as dependent care assistance plans (DCAPs).
In general, an FSA carryover only applies to health FSAs, but COVID-19 relief permitted a carryover of unused balances for DC-FSAs into the next plan year for plan years 2020 and 2021.
| Dependent Care FSAs (DC-FSAs) also called Dependent Care Assistance Plans (DCPAs) | 2022 | 2021 | Change |
| Maximum salary deferral (single taxpayers and married couples filing jointly) |
$5,000 | $5,000 (as indexed, but raised to $10,500) | no change to indexed amount |
| Maximum salary deferral (married couples filing separately) *The American Rescue Plan Act raised allowable pretax contribution limits for DC-FSAs for calendar year 2021 only. |
$2,500 | $2,500 (as indexed, but raised to $5,250)* | no change to indexed amount |
| Source: IRS Revenue Procedure 2021-45. |
The American Rescue Plan Act, signed into law on March 11, 2021, raised pretax contribution limits for DC-FSAs for calendar year 2021. The DC-FSA annual limits for pretax contributions increased to $10,500 (up from $5,000) for single taxpayers and married couples filing jointly, and to $5,250 (up from $2,500) for married individuals filing separately. The higher limits applied to the plan year beginning after Dec. 31, 2020 and before Jan. 1, 2022.
For 2022, the DC-FSA maximum, which is set by statute and is not subject to inflation-related adjustments, returns to $5,000 a year for single taxpayers and married couples filing jointly, or $2,500 for married people filing separately. Married couples have a combined $5,000 limit, even if each has access to a separate DC-FSA through his or her employer.
In addition, maximum contributions to a DC-FSA may not exceed these earned income limits:
- For single account holders, the earned income limit is their salary excluding contributions to their DC-FSA.
- For married account holders, the earned income limit is the lesser of their salary excluding contributions to their DC-FSA or their spouse’s salary.
Employers can also choose to contribute to employees’ DC-FSAs. However, unlike with a health FSA, the combined employer and employee contributions to a DC-FSA cannot exceed the IRS limits noted above.
A separate tax code child and dependent care tax credit cannot be claimed for expenses paid through a DC-FSA, as “double dipping” is not permitted.
Elder care may be eligible for reimbursement with a DC-FSA if the adult lives with the FSA holder at least 8 hours of the day and is claimed as a dependent on the FSA holder’s federal tax return.
Commuting Benefit Amounts
Employer-funded parking and mass-transit subsidies are tax-exempt for employees. Using pretax income, employees can also pay their own mass-transit or workplace parking costs through an employer-sponsored salary deferral program.
These expenses include the value of mass-transit passes and van pooling services, and parking on or near the business worksite or a location from which employees commute to work by driving and then using mass transit.
Data Provided by SHRM