The IRS kept the Health FSA limit at $2,750 for 2021. For cafeteria plans that allow participants to carryover unused amounts, the maximum carryover is $550.
If an employer’s existing cafeteria plan document permits employees to elect up to $2,750, no plan amendment is necessary. However, if the document specifies a lower maximum and the employer wants to increase that amount up to $2,750 and/or change their carryover cap, they should contact their flex administrator to amend their plan and communicate the change to employees and plan participants via an updated summary plan description (SPD) or a summary of material modifications (SMM). To make things simple and eliminate the need for annual limit amendments, an employer can draft their cafeteria plan to reflect the maximums allowable by the IRS in lieu of specifying a dollar amount.
The IRS announcement and bulletin below contain additional information on the new health FSA contribution limit and other tax-inflated adjustments including adoption assistance, transportation benefits and more.
Please contact our Employee Benefits team if you have questions or need assistance.