With the start of the new year, the new limits for HSA, FSA, and other employee-contribution benefits are now active. While only some limits were changed just slightly, employers should encourage their teams to look at their contributions for 2021.
What Employee Contribution Limits are Different in 2021?
Each year, the IRS reviews contribution limits for numerous tax provisions and healthcare savings accounts. In June 2020, the IRS announced that 2021 contribution limits for HSA accounts increased:
|
2021 |
2020 |
|
|
Individual Contribution Limit |
$3,600 |
$3,550 |
|
Family Contribution Limit |
$7,200 |
$7,100 |
|
Max Individual out-of-pocket |
$7,000 |
$6,900 |
|
Max Family out-of-pocket |
$14,000 |
$13,800 |
It’s also important to note that employees now have more FSA flexibility thanks to the passage of the 2021 Consolidated Appropriations Act (CAA). The new coronavirus relief bill introduced key updates to FSA and dependent care funds and claims—like the carryover of unused FSA funds and more—since many FSA owners didn’t use their funds as expected in 2020. Read more about those changes here.
What Employee Contribution Limits are Staying the Same?
While there were multiple changes for HSA account limits, the catch-up contribution limit (for those over age of 55) for HSA accounts remained at $1,000.
Meanwhile, FSA contribution limits remained unchanged from 2020, with the contribution max at $2,750. Dependent care FSA maximum contribution for married persons filing jointly remains at $5,000 and dependent care FSA max for married persons filing separately remains at $2,500.
Commuter benefit limits remained unchanged as well, with monthly contributions for both transit passes and services as well as qualified parking staying at $270.
Other Reminders for Employees
The IRS announced cost-of-living adjustments for contribution limitations for retirement accounts. Several changes were made overall, but employee elective deferral limits remain unchanged.
In 2021, employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan may only contribute $19,500 to these accounts. However, the IRS announced that a $1,000 increase in maximum contributions from all sources, which include employee and employer contributions. In other words, the employer contribution cap increased by $1,000, setting the maximum defined contribution limit at $58,000.
Meanwhile, the catch-up contribution limit for employees 50 and older—and who participate in these plans—also remains unchanged at $6,500.
Lastly, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) adjusted certain requirements for HSAs, FSAs, and HRAs that make it easier for people to pay for everyday medical care. The two permanent changes included making menstrual products a qualified expense, and the removal of the ACA provision that required a doctor’s prescription to pay for over-the-counter medicine using HSA, FSA, and HRA funds.
How Can Employers Help?
Depending on when your organization conducted open enrollment, the contribution limit numbers for 2021 could either be fresh in your employees’ minds, or they might need a reminder.
Encourage your employees to look at their contributions for the new year, especially if your company’s open enrollment for 2021 happened before the IRS announced the new limits. While the changes for HSA accounts weren’t drastic, it could make a difference for some employees. If you need help communicating the HSA limit changes to your team—if you haven’t done so already—use this template.
If your organization is still working remotely, employers should remind employees not to contribute to their parking and transit plan if they’re not commuting to work. This is especially important if your team has plans to extend working from home later into the year, so that employees can plan accordingly.