2022 FSA Contribution Limits

Here are the annual FSA contribution limits set by the IRS that you need to know.

Whether you currently contribute to a Flexible Spending Account (FSA) or your employer offers one and you’ve yet to sign up, you need to know how much you can save. Every year, the IRS announces FSA contribution limits for the following calendar year and usually revise them upward. And it’s important to pay attention to the changes to make sure you’re maximizing this benefit.

What is an FSA?

A Flexible Spending Account (FSA), is an employer-sponsored savings account into which you can contribute pre-tax money to pay for qualified, out-of-pocket health and medical expenses not covered under your insurance plans. That means you could end up saving up to 30% on those costs, depending on your tax burden.

There are three types of FSAs that you can use to pay for different expenses: Healthcare FSAs, Limited Purpose FSAs and Dependent Care FSAs.

Healthcare FSA contribution limits

The IRS 2022 contribution limit for healthcare FSAs is $2,850 and you can use this money to pay for qualified medical expenses for you, your spouse, and any dependents which you claim on your tax return. If both you and your spouse have an FSA, you can each contribute up to $2,850 in your respective accounts.

What you can’t do is double-dip. If one spouse reimburses a medical expense through their FSA, the other spouse can’t reimburse for the same expense.

Note: this is the contribution limit imposed by the IRS. Employers can choose to limit employees’ contributions even further.

Limited Purpose FSA contribution limits

Limited Purpose FSAs can only be used to pay for out-of-pocket dental and vision expenses for you, your spouse and any dependents you claim on your tax return. As such, you can contribute to a Limited Purpose FSA and a Health Savings Account (HSA) at the same time. So if your employer offers both, it’s a good idea to take advantage of each because using your Limited Purpose FSA for dental and vision expenses allows you to reserve more money in your HSA for retirement.

But since you can pay for dental and vision expenses with both your HSA and Limited Purpose FSA, it’s important to note, you can’t double-dip by submitting the same expense for reimbursement from both accounts. You have to pick one.

The 2022 contribution limit for Limited Purpose FSAs is $2,850. If you and your spouse are both offered an FSA through your employer, you can each contribute $2,850 to your respective accounts. But again, no double dipping. You can only reimburse an expense from one of your accounts, not both.

Note: this is the contribution limit imposed by the IRS. Employers can choose to limit employees’ contributions even further.

Dependent Care FSA contribution limits

Dependent Care FSAs were set up to help working parents and caregivers pay for the care that allows them to work. That means: a nanny, babysitter, daycare, preschool, summer day camp, and before and after school care for children under the age of 13; and adult daycare for a spouse, parent, or other relative who is physically or mentally disabled. These expenses must either enable you to work or look for work. That means volunteering doesn’t count, nor does the babysitter you hire for social events.

Another rule you should be aware of is: the dependents for which you are paying for care must live with you at least the majority of the time. If you and your spouse are divorced, only the parent who is the primary caregiver can contribute to a Dependent Care FSA.

The 2022 annual limit for this type of FSA is $5,000 for a married couple filing jointly, or $2,500 for each individual FSA if you each have a separate account.

Note: this is the contribution limit imposed by the IRS. Employers can choose to limit employees’ contributions even further.

How do I choose how much to contribute to my FSA?

During open enrollment, you elect the amount you’d like to save for the year and then your employer takes the appropriate amount from each paycheck to fund your FSA. Your employer can also contribute to your account, but it’s not required to do so.

Choosing the correct amount to save each year is an important decision since FSAs operate on a use-it-or-lose-it policy during most years. So any unused contributions in your account are absorbed by your employer at the end of the plan year unless your employer offers a grace period or allows rollovers.

For more information on unused contributions see the section: What if I contribute too much?

Can I change how much I contribute to my FSA?

Generally speaking, you can’t change your contribution after open enrollment unless you experience a “qualifying life event”. The “qualifying life events” that make you eligible for a contribution change are different for each type of FSA.

Qualifying life events for Healthcare and Limited Purpose FSAs include:

  • Change in marital status
  • Birth or death of a child
  • Change in employment
  • Some other event that causes you or a dependent to qualify or disqualify for coverage under the FSA

Qualifying life events for Dependent Care FSAs:

  • Change in marital status
  • Change in the number of dependents
  • The cost of care has changed
  • Change in employment status (you or your spouse)
  • Something happened to cause one of your dependents to either become eligible (e.g. an older child or parent who becomes disabled) or cease to be eligible (e.g. a child turns 14)
  • Change in residence

What if I contribute too much to my FSA?

In most years, the remaining contributions left in your FSA at the end of the year will be absorbed by your employer. Your employer has the option to offer you either a 2.5 month grace period in which to use your balance, or they can allow you to roll over $500 to the following year. They can’t offer you both.

Taxpayer Certainty and Disaster Relief Act, Plan Years 2021 and 2022 Due to Covid and the hardships people suffered during this time, the Taxpayer Certainty and Disaster Relief Act allows employers to carry over any unused FSA deposits from the 2021 plan year to 2022. Employers don’t have to offer this relief to employees, but they have the option to do so.

How do I use my FSA contributions?

When you want to use your FSA money, most administrators require you to pay for the out-of-pocket expense first, then submit documentation (i.e. a receipt or other proof of purchase) in order to get reimbursed. Some, like dependent care FSAs, allow you to set up a direct payment with the care provider.

What’s included in the annual contribution limit?

All contributions you make to your FSA.

What’s not included in the annual contribution limit?

Any employer contributions to your account and any rollovers from previous years. So, if you have $500 in your FSA at the end of 2021, and your employer allows a $500 rollover, and your employer deposits $500 into each employee’s FSA during the year, you theoretically could have $3,850 to use on medical expenses in 2022.

Contributing to an FSA can be helpful when it comes to paying for medical expenses. Just make sure to get an accurate assessment of what you’ll need in the coming year so you’re not forfeiting much (or anything) as the plan year ends. If you have specific questions about your FSA, reach out to your HR Department or the plan administrator.

Disclaimer: the content presented in this article are for informational purposes only, and is not, and must not be considered tax, investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, including fund prospectuses, and consult with appropriate tax, investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.

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