What Are the New Contribution Limits for Flexible Spending Accounts in 2022?
Key takeaways:
A flexible spending account (FSA) is an employer-sponsored benefit that helps you save money on many qualified healthcare expenses. You can contribute pretax dollars to fund the account.
The health FSA contribution limit is $2,850 for 2022, up from $2,750 in the prior year.
Depending on your employer plan, you may lose unused money in your account if you don’t use the funds to pay for eligible expenses before the deadline.
The IRS increased the contribution limits on flexible spending accounts (FSAs) for 2022. Contribution limits represent the total amount of pretax dollars you can set aside for qualified medical expenses. Every year, the IRS reviews the FSA contribution limits and adjusts the amounts to keep up with inflation.
FSAs can lower your healthcare costs by providing valuable tax savings. Your contributions come out of your pretax income, which lowers your income and payroll taxes. If you sign up for an FSA, your spending on qualified healthcare items is tax-free.
There are different factors to consider with FSA contributions. Congress has also made important changes that could impact your contribution goals. Below, we will break down how FSA contributions work and how they can help you reduce your healthcare costs.
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Are FSA contribution limits changing for 2022?
In November, the IRS updated the annual contribution limits for FSAs. The limits increased $100 from last year. For 2022, you can contribute up to $2,850 in your health FSA. Your spouse can make a maximum contribution, too. This is only possible, though, if the spouse has a separate FSA under another employer plan.
The annual employee contribution limit applies to the following FSAs:
Healthcare FSAs: With this FSA, you can pay for eligible medical expenses, deductibles, and copayments.
Limited-purpose FSAs: These allow you to contribute to health savings accounts (HSAs). But your eligible expenses are typically limited to your dental and vision benefits.
Post-deductible FSAs: These accounts are for where you have paid your annual deductible and you have a high-deductible health plan (HDHP) policy. You can contribute to an FSA along with an HSA to pay for your eligible medical expenses.
If you have a dependent care FSA, the annual contribution limits will be higher (see section below). Dependent care FSAs allow you to pay for qualified dependent services like preschool, summer day camp, and baby sitting. You can also include expenses for daycare for your spouse or relatives if they are unable to take care of themselves.
Are FSA carryover limits changing in 2022?
Congress recently passed legislation to change the carryover limits. You can roll over all unused funds of an FSA account from 2021 to 2022. The annual contribution limit for 2022 does not apply. But your employer must opt in for this new rule.
For example, suppose in 2021 you did not spend $1,500 in your FSA. You can roll this amount over into your account for 2022. You can then make a contribution of up to $2,850. If you contribute the maximum amount to your FSA in 2022, you'll have a total balance of $4,350 to spend in 2022.
How much of your FSA carries over from year to year?
Generally, an FSA has a use-it-or-lose-it feature. This means that you forfeit unused funds at the end of the year. The employer keeps them to administer the plan or to credit next year’s FSAs.
But the IRS allows employers other options. They can permit the carryover of the following fund limits to the next year.
| Year | Carryover amount for an FSA |
|---|---|
| 2022 | $570 |
| 2021 | $550 |
Source: IRS
If your employer did not opt in for the unlimited carryovers, then the $550/$570 amounts apply for 2021 and 2022.
The IRS also allows a grace period. This means you can use the funds in your FSA account up to 2.5 months after the end of the year. The grace period is only if the employer allows it. Also, the employer cannot have both a grace period and a carryover option.
How do you know if your FSA plan allows you to carry over unused funds?
You can ask your HR representative about your employer’s FSA rules. Your employer may also have the information on an internal website or in a benefits package.
You should also check your balances. This will help you plan the contributions for the following year.
What is the Consolidated Appropriations Act, and how does it affect how much you can carry over?
During the COVID-19 pandemic, many people deferred nonelective medical procedures. This resulted in large amounts of unused FSA funds. To address this, Congress passed the Consolidated Appropriations Act. It allows employers to do the following:
Provide 100% rollovers of FSAs
Extend the 2.5 months grace period to 12 months
Allow departing employees to access their FSAs for the rest of the year in which they depart
But this law does not go beyond 2022.
What is the family FSA limit for 2022?
This is also called a dependent care FSA. You can use it for your children under 14 years of age or for your spouse or relatives who cannot care for themselves. Eligible expenses include:
Pre- and after-school care
Nanny
Babysitting
Day care
Nursery school
Preschool
Summer day camp
Eldercare
Usually, the contribution limit is $5,000 for a married couple filing jointly (MFJ), or $2,500 for a single person. But the American Rescue Plan increased these amounts for 2021 to $10,500 for a MFJ, and $5,250 for a single person. You can carry over all the unused funds from 2021 to 2022, if your employer allows for this.
What is the deadline to submit FSA claims for 2022?
Your employer typically determines the deadline to submit FSA claims. It is often March 31 of the following year. This is also known as the run-out period. It represents the extra time you have to submit bills that you paid in the prior year. Your employer usually has certain requirements for the documentation, such as copies of the receipts and descriptions of the expense.
Can you increase FSA contributions midyear?
Generally, you decide your annual contribution during the enrollment period or when you start a new job. You cannot make mid-year changes unless there is a qualifying life event (QLE). Here are some examples:
Marriage
Birth of a child
Death of a spouse or dependent
Divorce
Job change for you, your spouse, or dependent
Legislation allowed midyear changes without a need for a QLE for 2021. But Congress is likely not to extend this benefit.
The bottom line
Congress and the IRS have made FSAs more attractive for 2022. Not only can you increase your contribution, but you may be able to roll over all unused money from 2021. To see if the new rules apply, you should check with your HR department or visit your company’s internal website. You should also check your current balance and estimate your 2022 medical expenses. This will help you decide on the amount to contribute to your FSA.
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References
Internal Revenue Service. (2021). 26 CFR 601.602 - Tax forms and instructions. § 601.602.
Internal Revenue Service. (2021). 2020 Publication 502.
Internal Revenue Service. (2021). Publication 969 (2020), Health Savings Accounts and Other Tax-Favored Health Plans.
U.S. Congress. (2021). H.R.133 - Consolidated Appropriations Act, 2021.
This article is solely for informational purposes. This article is not professional advice concerning insurance, financial, accounting, tax, or legal matters. All content herein is provided “as is” without any representations or warranties, express or implied. Always consult an appropriate professional when you have specific questions about any insurance, financial, or legal matter.
