This week the IRS confirmed cost-of-living increases for several employee benefit plan related limits. The agency announced the new limits in Revenue Procedure 2021-45. They were consistent with similar rates of increase in the Consumer Price Index over the past year.
The new limits announced this week apply to Health Flexible Spending Arrangements (Health FSAs) and Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs) with Plan Years beginning at any time during 2022. In addition, they apply to reimbursements paid by Transit and Parking Reimbursement Plans for expenses incurred during any month of 2022.
Plans with 12 month Plan Years beginning in 2022 may allow employee salary reduction contributions up to $2,850 per year. This is an increase of $100 over the $2,750 limit applicable to Plan Years beginning in 2021. Health FSAs with Plan Years consisting of less than 12 months must pro-rate the applicable limit.
The new employee contribution limit also impacts the Health FSA rollover limit for Plan Years beginning during 2022. In 2020, the IRS linked the maximum annual Health FSA rollover to 20% of the annual employee contribution limit. Therefore, for Health FSAs beginning in 2022, $570 can be rolled over into the following Plan Year. This is an increase of $20 over the originally announced $550 limit for Plan Years beginning in 2021. Note however that the $550 limit for Plan Years beginning in 2021 does not actually apply. Congress granted a temporary waiver of rollover limits for Health FSAs with Plan Years beginning in 2020 and 2021 in response to the COVID-19 pandemic.
12 month Plan Years beginning in 2022 may reimburse participants with self-only coverage up to $5,450 per year. The limit for participating employees with family coverage is $11,500 per year. These amounts are increases against the 2021 limits of $5,300 and $10,700. Similar to the rule for Health FSAs, Plan Years of less than 12 months must pro-rate the limits consistent with the length of the Plan Year.
Transit and Parking Reimbursement Plans
Plans may reimburse participating employees up to $280 per month for qualifying benefits. This is a $10 per month increase over the 2021 monthly limit of $270. The $280 limit applies separately to monthly benefits provided for Transit / Van Pooling related expenses and Parking related expenses. Therefore, employers could reimburse participants up to $560 per month if the employee incurs eligible Transit and Parking expenses.
Next Steps for Admin America Clients
Admin America will automatically adjust the applicable 2022 annual limits for clients previously utilizing the 2021 limits. Clients who wish to take advantage of these automatic adjustments do not need to take any action. Clients utilizing the 2021 maximums who do not wish for Admin America to automatically adjust their 2022 limits should send an e-mail request to firstname.lastname@example.org.
If you have any questions, please contact our FSA customer service. You can reach team via telephone at (678) 578-4641 or via e-mail at email@example.com.