The 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 Nov. 10, 2021, the IRS released Revenue Procedure 2021-45 (Rev. Proc. 21-45), which announced that the health FSA dollar limit on employee salary reduction contributions will increase to $2,850 for taxable years beginning in 2022. This is a $100 increase from the 2021 health FSA limit of $2,750. Rev. Proc. 21-45 also increases the carryover limit for a health FSA to $570. It also includes annual inflation-adjusted numbers for 2022 for a number of other tax provisions.
- The IRS announced that the health FSA dollar limit will increase to $2,850 for 2022.
- Employers may continue to impose their own dollar limit on employee salary reduction contributions to health FSAs, up to the ACA’s maximum.
- Employers should communicate their 2022 limit to their employees as part of the open enrollment process.
Action Steps for Employers
Employers should ensure that their health FSAs will not allow employees to make pre-tax contributions in excess of $2,850 for the 2022 plan year and communicate the 2022 limit to their employees at enrollment time.
An employer may continue to impose its own limits on employee contributions to health FSAs, as long as the employer’s limit does not exceed the ACA's maximum limit for the plan year.
For more information read the full legal bulletin below.
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This regulatory update is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice.