The Internal Revenue Service (IRS) finally announced the official 2022 Flexible Spending Account (FSA), commuter, and adoption limits. Here are the newly released contribution limits:
NEW CONTRIBUTION LIMITS
- 2022 Healthcare FSA/Limited Purpose FSA: $2,850
- 2022 FSA carryover: $570
- 2022 Dependent Care FSA: $5,000 (family); $2,500 (married filing separately)
- 2022 Commuter (parking and transit): $280 per month
- 2022 Adoption limit: $14,890
YOUR FLEXIBLE SPENDING ACCOUNTS
The 2022 healthcare FSA contribution limit is an increase of $100 from the 2021 healthcare FSA contribution limit ($2,750). The carryover limit is an increase of $20 from the 2021 limit ($550).
The 2022 Dependent Care FSA contribution limits decreased from $10,500 in 2021 for families and $5,250 for married taxpayers filing separately. The 2021 Dependent Care FSA limits came in response to the COVID-19 pandemic as a temporary relief to working parents. Both healthcare FSAs and Dependent Care FSAs are versatile healthcare savings vehicles that allow individuals to receive tax benefits when they spend funds on eligible expenses.
Overall, there are four general types of FSAs to know about:
- Healthcare FSA: Can be used for eligible medical expenses, including deductibles, copays, and coinsurance.
- Post-deductible FSA: Can be used for certain eligible medical expenses once a minimum deductible has been met. Can be used in conjunction with a Health Savings Account (HSA).
- Limited-purpose FSA: Can be used to pay for eligible vision and dental expenses. Can be used in conjunction with an HSA.
- Dependent Care FSA: Can be used to pay for eligible expenses related to tax dependents, including day care, preschool, elderly care, and other types of dependent care. This type of FSA can only be used if the dependent care is necessary for you or your spouse to work, look for work, or to attend school full time.
WHAT TO KNOW ABOUT ROLLOVER FUNDS
In general, FSA funds are a use-it-or-lose-it account. However, employers may offer employees one of two options:
- Grace period: Allows for a maximum of an extra 2.5 months to use FSA funds for eligible expenses incurred in the following plan year.
- Carryover: Allows accountholders to carry over a certain amount (for 2022, the limit is $570) that can be used in the following year.
Employers can offer one of these options but not both, and neither option is required. To learn more contact us for more information.
DETAILS ON COMMUTER LIMITS
For 2022, the commuter contribution limits have increased $10 more per month than the 2021 contribution limit ($270).
If this plan is offered by the Employer, a commuter account allows you to set aside pre-tax funds to pay for your commute to work. For 2022, if you were to use both transit and parking, you could set aside up to $6,720 annually. Assuming a 30% effective tax rate that means you could potentially reduce your tax liability by more than $2,000.
ADOPTION ASSISTANCE EXCLUSION AND ADOPTION CREDIT
The IRS also increased the Adoption Assistance Exclusion or Adoption Credit amounts to $14,890, an increase of $490 from 2021 ($14,400).
Parents who either adopted or tried to adopt a child may seek to claim the adoption credit on their individual tax returns. If a taxpayer’s employer helped with adoption expenses through a qualified adoption assistance program, the taxpayer may qualify to exclude that amount from their individual taxes.