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The Affordable Care Act (ACA) has a dollar limit on employees’ salary reduction contributions to health flexible spending accounts (FSAs) offered under cafeteria plans. The IRS announced that the health FSA dollar limit will remain the same at $2,750 for 2021.
Employers may continue to impose their own dollar limit on employee salary reduction contributions to health FSAs, up to the ACA’s maximum. For example, an employer could limit FSA contributions to $2,500 for the 2021 plan year.
The health FSA limit applies on an employee-by-employee basis which means that each employee may only elect up to $2,750 in reductions. However, each employee may only elect up to $2,750 in salary reductions, regardless if an employee has family members who benefit from the funds in the FSA. Each family member who participates in their own health FSA has a separate limit.
Employers should make sure to inform their employees of their 2021 FSA limit as part of the open enrollment process. Download the bulletin for more details.