In the year 2013, the Affordable Care Act imposed a cap on the Health Care Flexible Spending Account (FSA). This was to fundamentally ensure the dollar has a limit that’s indexed with a provision for annual increments. According to the new reports, however, the FSA limits for the year 2021 are set to remain the same. According to IRS, there is a clear projection of no changes, and the annual maximum will be retained at 2,750 dollars per year. Furthermore, the Revenue Procedure highlighted that employers should make sure their health FSAs of their workers’ do not make pre-tax contributions in the excess of the limits in the year 2021.
Some of the key implications of this plan include but are not limited to the following:
- The health care pre-tax salary reduction is per employee and per employer for the given year
- The employer contribution will be an addition to the amount such an employer can elect
- An employer with the maximum FSA set as the maximum in the plan wouldn’t be required to amend the cafeteria plan for the adoption of the new limit
The following are two major limit categories and what the new plans mean to them
Notably, the employer could possibly continue to impose their individual dollar limit on their employees’ wages. This is only applicable if the employer’s limit does not go beyond the ACA caps in relation to the New Year plans. It’s worth noting that no employer shall be required to adopt the new Health Care FSA plan limit or even an increment. The employer will, however, be required to amend the plan if he/she needs to benefit from the new projections. According to IRS caps on employer limits, there are two ways the employer can contribute:
- He/she may match to 500 dollars the employee contribution notwithstanding
- An employer may start from 501 dollars where they will make a dollar-for-dollar contribution in relation to the employee’s contribution
Per Employee Limit
This plan takes into consideration the employee to employee principle. It’s mandatory for each employee therefore to elect up to 2,750 dollars in reductions of the salaries in the coming year of 2021. This is regardless of whether the employee in question has family members who may be beneficiaries or not. However, each family member with the capacity to take part in his or her own health FSA can make salary reductions of 2,750 dollars per year. These deductions are subject to employer limits plans in place.
THE CARRYOVER CAP
A notice number 33 by IRS in the year 2020 suggested a COVID-19 relief. This rose the funding of FSA plans from 500 dollars to 550. This implies that there are two options for employers. They can embrace the two plans but they cannot in any way possible offer both of them. This is explained below:
- Carryover- in the vent of FSA has a carryover feature, the participants will have to roll over 550 dollars of unused FSA dollars.
- Grace Period- there is a provision of an optional grace period that offers employees two and half extra months to incur the new expenses using the previous year’s FSA funds. At the collapse of the grace period in the month of March, all the unspent money will be forfeited.
The employers may also decide to contribute to the employees ‘dependents with considerations to the IRS limits. Elders’ care might be legible for refunding and reimbursements only if the adult stays with the FSA holder for a minimum of eight hours a day.