On October 27, 2020, the Internal Revenue Service (IRS) released Revenue Procedure 2020-45, which contains the 2021 limits for health flexible spending accounts (FSAs) and commuter and parking benefits, among other limits. The health FSA, commuter and parking benefit, and dependent care FSA (DC FSA) limits have not increased for 2021.

Employers are allowed to increase their health FSA carryover amounts from $500 to $550, which we discussed extensively in this prior blog article. This increase would allow employees to carryover up to $550 of unused amounts from the 2020 plan year into the 2021 plan year. It is important to note that employers can only allow for a carryover if their health FSA does not have a grace period provision.

The 2021 limits, as compared to the 2020 limits, are listed below:

BENEFITS2021 LIMIT2020 LIMIT
FSA$2,750$2,750
FSA Carryover$550$500
Dependent Care FSA$5,000*$5,000*
Qualified Commuter/Parking Benefits$270/month$270/month
*Limit is $2,500 for an account holder who files their taxes “married filing separately”

As a reminder, the 2021 limits for health saving account (HSA) and high deductible health plans (HDHP) were previously released in IRS Revenue Procedure 2020-32 in May of this year, which we discussed in this prior blog. The 2021 HSA and HDHP limits, as compared to the 2020 limits, are outlined below:

BENEFITS2021 LIMIT
(single/family)
2020 LIMIT
(single/family)
HSA$3,600/ $7,200$3,550/ $7,100
Minimum Annual HDHP Deductible$1,400/ $2,800$1,400/ $2,800
Maximum Annual HDHP Deductible$7,000/ $14,000$6,900/ $13,800

Employer Action Items

  • Employers should be aware the 2021 limits for health FSAs and commuter benefits have not increased from 2020.
  • Employers who want to increase their health FSA carryover amounts from $500 to $550 should work with their FSA vendor to ensure the appropriate amounts roll over into the 2021 plan year.
  • Employers must amend their FSA plan documents by December 31, 2021 to allow for any increased carryover amounts.

Additional Resources

Disclaimer: This content is intended for informational purposes only and should not be construed as legal, medical or tax advice. It provides general information and is not intended to encompass all compliance and legal obligations that may be applicable. This information and any questions as to your specific circumstances should be reviewed with your respective legal counsel and/or tax advisor as we do not provide legal or tax advice. Please note that this information may be subject to change based on legislative changes. © 2020 Sequoia Benefits & Insurance Services, LLC. All Rights Reserved

Emerald Law – Emerald is a Client Compliance Consultant for Sequoia, where she works with our clients to optimize and streamline benefits compliance. In her free time, Emerald enjoys stand-up comedy, live music and writing non-fiction.