2020 Limits for FSAs, Commuter Benefits, and Adoption Assistance

IRS Announces the 2020 Limits for FSAs, Commuter Benefits, and Adoption Assistance

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It’s that time of year! The Internal Revenue Service (IRS) has officially announced the 2020 limits for health care flexible spending accounts (FSAs), commuter benefits (also known as qualified transportation fringe benefits), and adoption assistance. In making contribution limit decisions, the IRS annually takes into account cost of living increases due to inflation.

Need a crash course on the ins and outs of these benefits? Check out our pages on health care FSAs, commuter benefits, and adoption assistance programs.

IRS 2020 Limits

Health Care FSA

The monetary limit on employee pre-tax salary reduction contributions will increase to $2,750, up from $2,700 in 2019, according to the IRS.

Commuter Benefits

The IRS will allow $270 per month, pre-tax, to be excluded from an employee’s income for qualified parking benefits, up from $265 per month in 2019. Additionally, the combined monthly limit for transit passes and vanpooling expenses for 2020 will be $270, also up from $265.

Adoption Assistance

For adoption of a child, the maximum amount that may be excluded from an employee’s gross income under an employer-provided adoption assistance program will increase to $14,300 for 2020, up from $14,080 in 2019. The IRS notes that the exclusion, however, will begin to be phased out for individuals with modified adjusted gross incomes exceeding $214,520, and will be entirely phased out for individuals with modified adjusted gross incomes of $254,520 and greater.

For more information, you can visit the IRS site here.

Why This Is Good News for Employers and Employees

Although the limit increase may seem small, the benefits can add up for both employers and their employees. For employers, these annual increases in contribution limits can help ensure that FSAs, commuter benefits, and adoption assistance programs remain an attractive addition to their benefits package, which can be used to recruit and retain valuable talent. Employers can also save on their payroll taxes when employees take advantage of these benefits.

For employees, this 2020 limit increase allows them to set aside even more tax-free money to pay for items and services they need every day, and in the meantime, reduce their taxable income.

Do you have questions on this 2020 limit increase? Contact us at legislativenews@connectyourcare.com.

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.