Updated 3/29/21 with updates to the dependent care FSA limit for 2021 pursuant the American Rescue Plan and updates to the temporary carryover/grace period relief for FSAs.

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 and commuter and parking benefit limits have not increased for 2021. On March 11, 2021, the American Rescue Plan increased the dependent care FSA limits have increased to $10,500.

Under the Consolidated Appropriations Act of 2021 (CAA), employers are allowed to temporarily adopt a higher carryover provision or an extended grace period for health FSAs and DC FSAs. For health FSAs and DC FSAs with plan years ending in 2020 and 2021, the CAA allows employers to implement a carryover of all or part of any unused amount remaining at the end of the plan year or they may allow a grace period of up to 12 months, but not both. For more on this temporary relief, see our blog article.

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

FSA Carryover$550$500
Dependent Care FSA$10,500*$5,000*
Qualified Commuter/Parking Benefits$270/month$270/month
*Limit is $5,250 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:

2020 LIMIT
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 adopt the higher DC FSA limit for 2021 and/or adopt a higher carryover/extended grace period for their health FSA and/or DC FSA plans must amend their plan documents and notify their employees accordingly.

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.