The IRS has just released its 2021 annual inflation adjustments, in which it announced that the Code section 125 dollar limitation on voluntary employee salary reductions to health flexible spending arrangements (health FSAs) is staying at $2,750.
The IRS annual inflation adjustments for more than 60 tax provisions, including health FSAs, can be found in Rev. Proc. 2020-45. This guidance reiterates that cafeteria plans can be written to allow carryovers of unused health FSA amounts up to a maximum of $550.
Although open enrollment season is about to be in full swing for most, employers should ensure that their salary reduction agreements, plan documents, and related enrollment materials are updated to reflect any changes in benefits for the upcoming plan year.