IRS Announces 2022 Inflation-Adjusted Limits for FSA and Transportation Benefit; Remember to Amend FSA Documents by December 31 for COVID-19-Related FSA Relief
1. 2022 FSA Limits
The IRS recently released Revenue Procedure 2021-45, which enumerates increases in certain federal fees/taxes and also addresses the issue of 2022 Flexible Spending Accounts (FSA) limits. To that end, the IRS states:
Cafeteria Plans: For taxable years beginning in 2022, the dollar limitation under § 125(i) on voluntary employee salary reductions for contributions to health flexible spending arrangements is $2,850. If the cafeteria plan permits the carryover of unused amounts, the maximum carryover amount is $570.
2. Qualified Transportation Fringe Benefit
Qualified Transportation Fringe Benefit: For taxable years beginning in 2022, the monthly limitation under § 132(f)(2)(A) regarding the aggregate fringe benefit exclusion amount for transportation in a commuter highway vehicle and any transit pass is $280. The monthly limitation under § 132(f)(2)(B) regarding the fringe benefit exclusion amount for qualified parking is $280.
Resources: A link to IRS Revenue Procedure 2021-45 is here: https://www.irs.gov/pub/irs-drop/rp-21-45.pdf. See item 16 for FSA guidance and item 17 for transportation guidance.
3. December 31, 2021: Deadline to Amend FSA Plan Documents to Reflect
The coronavirus pandemic triggered significant IRS Section 125 cafeteria plans and FSA guidance. For example, employers and plan sponsors could offer plan participants opportunities to change their coverage or FSA elections, carryover balances from 2020 to 2021 and 2021 to 2022, have extended grace periods, and more. The underlying public policy was to try to protect participants, since the pandemic essentially froze them out of many services for which they could have used FSA dollars. Employers who took advantage of any of this relief must amend their Section 125 cafeteria plans and FSA plans by December 31, 2021. We would recommend working with your FSA vendor to confirm that the plan amendment has taken place.
Note: This alert constitutes compliance advice from the Fred C. Church Agency as your employee benefits broker and does not establish an attorney-client relationship with the recipient, who is free to consult with legal or tax counsel of their own choosing.