FSA Tag

Many employee benefits are subject to annual dollar limits that are periodically updated for inflation by the IRS. The following commonly offered employee benefits are subject to these limits:

• High deductible health plans (HDHPs) and health savings accounts (HSAs); • Health flexible spending accounts (FSAs); • 401(k) plans; and • Transportation fringe benefit plans. The IRS typically announces the dollar limits that will apply for the next calendar year well in advance of the beginning of that year. This gives employers time to update their plan designs and make sure their plan administration will be consistent with the new limits.

Legal Update HeaderThe Affordable Care Act (ACA) imposes a dollar limit on employees’ salary reduction contributions to health flexible spending accounts (FSAs) offered under cafeteria plans. This dollar limit is indexed for cost-of-living adjustments and may be increased each year.

On Oct. 27, 2020, the IRS released Revenue Procedure 2020-45 (Rev. Proc. 20-45), which announced that the health FSA dollar limit on employee salary reduction contributions will remain at $2,750 for taxable years beginning in 2021. It also includes annual inflation-adjusted numbers for 2021 for a number of other tax provisions. Employers should ensure that their health FSAs will not allow employees to make pre-tax contributions in excess of $2,750 for the 2021 plan year, and communicate the 2021 limit to their employees as part of the open enrollment process.

The Departments of Labor, Health and Human Services and the Treasury (Departments) have provided answers to frequently asked questions (FAQs) regarding health coverage issues related to COVID-19, including implementation of the Families First Coronavirus Response Act (FFCRA) and the Coronavirus Aid, Relief and Economic Security Act (CARES Act).

These new laws require health plans and issuers to cover certain items and services related to the diagnosis of COVID-19 without imposing any cost- sharing requirements (including deductibles, copayments and coinsurance) or prior authorization or other medical management requirements. According to the Departments’ FAQs, health plans and issuers must provide notice of the changes to plan participants as soon as reasonably practicable.