The IRS has released Revenue Procedure 2021-45 confirming that for plan years beginning on or after January 1, 2022, the health FSA salary reduction contribution limit will increase to $2,850.
The adjustment for 2022 represents a $100 increase to the current $2,750 health FSA salary reduction limit.
The contribution limit is set by the ACA (originally $2,500) and adjusts in $50 increments based on a complex cost-of-living calculation tied to the chained and standard consumer price index increases for the preceding calendar year. After two years in a row stuck at the $2,750 limit (plan years beginning on or after January 1, 2020 and 2021), the cost-of-living increases in 2021 were sufficient to boost the limit by two $50 increments ($100 total) to $2,850 for plan years beginning on or after January 1, 2022.
What About the Carryover Limit?
Last year, the IRS announced an increase of the $500 carryover limit to be indexed at 20% of the maximum health FSA salary reduction contribution for the plan year. The indexed carryover limit increases in multiples of $10.
The indexed carryover limit for plan years starting in calendar year 2022 to a new plan year starting in calendar year 2023 will increase to $570.
The adjustment represents a $20 increase to the standard $550 carryover limit in effect for amounts carried into 2021 and 2022.
Note that the CAA FSA relief provisions permit employers to offer carryovers of the full unused FSA balance from plan years ending in 2020 and 2021 into the subsequent plan years ending in 2021 and 2022, respectively. Absent an extension of this full carryover option into 2023, the carryover limit for health FSAs into 2023 will be capped at $570, which is 20% of the $2,850 limit in 2022.
For full details:
What About Employer Contributions?
As a reminder, employer contributions (including non-cashable flex credits) generally cannot exceed $500 per plan year for the health FSA to maintain excepted benefit status. Non-excepted health FSAs cannot comply with the ACA market reform mandates.
Therefore, in most cases the maximum health FSA amount available for plan years beginning on or after January 1, 2022 will be limited to $2,850 (max employee salary contribution) + $500 (max employer contribution, if offered) = $3,350 (combined).
Also, keep in mind that the health FSA eligibility cannot be broader than the major medical plan eligibility to maintain excepted benefit status (as required by the ACA). In other words, the health FSA should never be available to an employee who is not also eligible for the major medical plan (regardless of enrollment status).
Other Notable 2022 Employee Benefit Amounts
- Dependent Care FSA: ARPA increased the dependent care FSA limit to $10,500 for calendar year 2021. The increased limit automatically sunsets at the end of 2021 absent additional congressional action, reverting to the standard $5,000 limit for the 2022 calendar year. See our full alert for more details.
An early draft version of the reconciliation bill currently being debated in Congress would have made the increase permanent (and indexed for inflation). A more recent scaled-down draft version of the “Build Back Better” bill does not include the dependent care FSA increase.
- Commuter Benefits: The transit pass/vanpooling and parking limits will be $280 per month (up from $270).
- Adoption Assistance: The adoption assistance plan limit will be $14,890 (up from $14,440).
- 401(k) Plan: The annual employee elective deferral limit will be $20,500 (up from $19,500). See IRS Notice 2021-61 for more details.
- HSA Limits: The IRS released the 2022 HSA limits back in May. The individual contribution limit will be $3,650 (up from $3,600) and the family contribution limit will be $7,300 (up from $7,200). See our full alert and our Newfront Office Hours Webinar: Go All the Way with HSA for full details.
- ACA Employer Mandate Affordability: The 2022 affordability safe harbor percentage decreases from 9.83% to 61%. This sets the federal poverty line affordability safe harbor at a $103.14 maximum monthly employee-share of the premium for the lowest-cost plan option at the employee-only tier. See our full alert for more details.
- ACA Pay or Play Penalties: The 2022 annualized employer mandate pay or play penalties are anticipated to increase to $2,750 (the Section 4980H(a) “A Penalty”) and $4,120 (the Section 4980H(b) “B Penalty”) annualized. The IRS Employer Shared Responsibility Payment FAQ should be updated in the near future to confirm. See our Newfront Office Hours Webinar: The ACA Employer Mandate & ACA Reporting for more details.
- ACA Reporting: The deadline to furnish 2021 Forms 1095-C to employees will be January 31, 2022. Unlike all previous years of ACA reporting, the IRS has stated that they will a) not provide any extended deadlines in 2022, and b) not extend the good faith enforcement safe harbor from penalties for incorrect or incomplete information on the 2021 Forms 1094-C and 1095-C (generally $280 per return).
The Form 1094-C and copies of the Forms 1095-C must be filed with the IRS by the standard deadlines of February 28, 2022 (by paper) or March 31, 2022 (electronic filing, required for 250 or more returns). See our Newfront Office Hours Webinar: The ACA Employer Mandate & ACA Reporting for more details.
- California SDI/PFL: The 2022 taxable wage base will increase to $145,600 (from $128,298), while the employee contribution rate will decrease to 1% (from 1.2%). The maximum to withhold for each employee will increase accordingly to $1,601.60 (from $1,539.58). The maximum weekly benefit will also increase significantly to $1,540 (from $1,357). See here for full details.
- San Francisco HCSO: The 2022 required health expenditure rates will be $3.30 per hour payable for large employers (up from $3.18) and $2.20 per hour payable for mid-sized employers (up from $2.12). See our full alert and Newfront Office Hours Webinar: The San Francisco Health Care Security Ordinance for more details.
Disclaimer: The intent of this analysis is to provide the recipient with general information regarding the status of, and/or potential concerns related to, the recipient’s current employee benefits issues. This analysis does not necessarily fully address the recipient’s specific issue, and it should not be construed as, nor is it intended to provide, legal advice. Furthermore, this message does not establish an attorney-client relationship. Questions regarding specific issues should be addressed to the person(s) who provide legal advice to the recipient regarding employee benefits issues (e.g., the recipient’s general counsel or an attorney hired by the recipient who specializes in employee benefits law).