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For 2021, the dollar limit for employee contributions to health flexible spending accounts (health FSAs) through salary reductions remains unchanged at $2,750, the IRS announced on Oct. 27 when it issued Revenue Procedure 2020-45.
For health FSA plans that permit the carryover of unused amounts, the maximum carryover amount for 2021 is $550, an increase of $50 from the original 2020 carryover limit.
The guidance also includes annual cost of living adjustments (COLAs), if any were made, for other employee benefit plans. For instance, for tax year 2021, the monthly limit for qualified transportation benefits remains $270, as is the monthly limit for qualified parking.
The IRS a day earlier announced 2021 contribution limits for 401(k) and similar defined contribution plans and annual limit adjustments for defined benefit pension plans.
The IRS released 2021 HSA contribution limits in May, giving employers and HSA administrators plenty of time to adjust their systems for the new year. The individual HSA contribution limit will be $3,600 (up from $3,550) and the family contribution limit will be $7,200 (up from $7,100).
IRS Notice 2020-33, issued on May 12 as part of COVID-19 relief, raised the amount of funds that health FSA plans can carry over for 2020 to $550, up from $500. For 2021, the maximum carryover amount remains $550.
There are two options for FSA extensions; employers can adopt either or neither, but can’t offer both:
The Obama administration is giving certain employers extra time before they must offer health insurance to almost all of their full time workers.
Under new rules announced Monday by Treasury Department officials, employers with 50 to 99 workers will be given until 2016 (two years longer than originally envisioned under the Affordable Care Act) before they risk a federal penalty for not complying.
Companies with 100+ workers or more are getting a different kind of one-year grace period. Instead of being required in 2015 to offer coverage to 95% of full time workers, these bigger employers can now avoid a fine by offering insurance to at least 70% of workers next year.
Administration officials had already announced in July 2013 that the employer requirements would be postponed until 2015 and this recent announcement has caught officials by surprise.
Obama administration officials said the Treasury Department decided to allow medium-size businesses more latitude because “they need a little more time to adjust to providing coverage”.
The Affordable Care Act (ACA) states that anyone who works 30 hours or more is a full time employee, and it compels many employers to offer affordable insurance to those workers and their dependents. (Please note that Florida law currently defines a full time worker as anyone who works 25 or more hours). It also defines affordable as premiums of no more than 9.5% of an employee’s income, and employers must pay for the equivalent of 60% of the actuarial value of a worker’s coverage. Businesses that fail to do so will eventually face a fine of up to $2000 for each employee not offered coverage, though workers are not required to sign up for the benefits.
For questions on how these recent changes will affect your business or for help complying with the ever-changing ACA requirements, please contact our office.
On October 31, 2013, the US Treasury and the IRS issued Notice 2013-71, which modifies the “use it or lose it” rule for Healthcare Flexible Spending Accounts (FSAs).
A Healthcare FSA is a form of cafeteria plan benefit offered by employers to allow their employees to pay for eligible out of pocket healthcare expenses with pre-tax dollars. Healthcare FSAs are typically funded by salary reduction contributions. Effective for plan years beginning after December 31, 2012, and employee’s contributions to a Healthcare FSA are limited to $2500 per year (indexed for inflation beginning in 2014).
Historically, these contributions were also subject to a “use it or lose it” rule which provided that contribution to plan that are not used before the end of the plan’s fiscal year would be forfeited. This rule was modified several years ago to permit a plan to add a “grace period” of 2 ½ months following the end of the plan’s fiscal year to allow employees an extra amount of time to use their FSA funds before losing them.
The new rules issued by the IRS permit another option that employers may want to consider. An employer may amend its plan document to permit a carryover of up to $500 for any unused FSA funds at the end of the plan year. The carryover, if permitted in the plan, may be used to pay medical expenses incurred during the plan year to which it is carried over, and would be in addition to the $2500 employee contribution limit.
A plan adopting the new carryover option is not permitted to also provide a grace period. An employer must decide to either provide a grace period or the new carryover option, but not both. Of course, an employer may choose to provide for a carryover limit of less than $500, or not to permit the carryover or grace period at all, as these are both entirely optional. When deciding whether or not to eliminate a grace period in favor of the new carryover option, an employer may want to compare the potential administrative impact of each option.
As mentioned above, the new carryover rule is not available during a plan year in which the plan permits a grace period. Therefore, plans containing a grace period must first be amended to remove it if the employer wants to add a carryover provision. The amendment to remove the grace period must be adopted before the end of the plan year in which it becomes effective. For example, if an employers wants to permit employees to carryover up to $500 from the 2014 plan year to the 2015 plan year, the employer must amend the plan and provide participants with notice of the amendment before the end of the 2014 plan year.
Please contact our office for more information on how to implement an FSA into your workplace or amend your existing plan document.