ConnectYourCare Announces 2021 IRS Limits for FSA, Commuter Benefits, and Adoption Assistance

On October 26, 2020, the IRS made an official announcement on 2021 contribution limits for health care flexible spending accounts (FSAs), commuter benefits, and adoption assistance. For the 2021 plan year, FSA and commuter benefit contribution limits remain unchanged from 2020, while adoption assistance is increasing by $140.

The IRS uses the cost of living and inflation to determine limits, which is detailed in Revenue Procedure 2020-45.

Health Care FSA Contribution Limit

A health care FSA lets account holders use pre-tax dollars for medical expenses. Eligible expenses include deductibles, copays, dental, vision, prescriptions, and family members’ medical care, regardless of their health coverage. The 2021 FSA contribution limit will be $2,750, which is unchanged from 2020.

2021 Health Care FSA Contribution Limit

2020

$2,750

2021

$2,750

Increased FSA Rollover Limit

Health care FSA funds may generally be used to reimburse expenses incurred during the year, with any remaining balance forfeited. However, there is an exception that lets employees roll over unused health care FSA contributions to the next year—if the employer offers this option—without reducing the amount of contributions for the next year.

Earlier in 2020, the IRS announced in Notice 2020-33 that the maximum rollover limit for health care FSAs was increased from $500 to $550.

2021 Health Care FSA Rollover Limit

2020

$500

2021

$550

Learn more about health care FSAs.

Commuter Benefits Contribution Limit

Commuter benefits, also known as known as qualified transportation fringe benefits, allow users to set aside pre-tax dollars for work transportation costs, including fare cards, vouchers, and shared rides. The 2021 commuter benefit contribution limit will be $270, just as it was in 2020.

2021 Commuter Benefit Contribution Limit

2020

$270

2021

$270

Learn more about commuter benefits.

Adoption Assistance Limit

Adoption assistance gives employees tax relief when they are adopting a child. For 2021, the amount that can be excluded from an employee’s gross income for the adoption of a child is $14,440. This is $140 more than in 2020, when it was $14,300.

2021 Adoption assistance limit

2020

$14,300

2021

$14,440

Learn more about adoption assistance.

Heading into a New Year

As we head into 2021, there are many unknown health care variables, but on the positive side, overall benefits are still the same. For employees, they will continue to be able to use tax-free money to pay for eligible items and services while reducing their taxable income. Likewise, employers will continue to be able to attract and retain employees with valuable benefit packages, as well as save on payroll taxes. We’re all in it together, and we’re ready for whatever comes next.

Any questions on 2021 contribution limits?

Contact Us Today!

About the Author:
Carla Wardin lives in St Johns, Michigan, where she focuses her writing on the health and technology industries.

By |2020-10-29T17:58:17-04:00October 29th, 2020|Adoption Assistance, Commuter, FSAs, Legislation|
Disclaimer: ConnectYourCare does not provide tax or legal advice. This information is not intended and should not be taken as tax or legal advice. Any tax or legal information in this notice is merely a summary of ConnectYourCare’s understanding and interpretation of some of the current tax regulations and is not exhaustive. You should consult your tax advisor or legal counsel for advice and information concerning your particular situation before making any decisions.
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