2021 Annual Limits for FSA and Limited Purpose FSA – $2750
2021 Limits for Transit/Parking – $270/month
2020 Annual Limits for FSA and Limited Purpose FSA – $2750
2020 Limits for Transit/Parking – $270/month
With few exceptions, almost all employees can participate in the FSA . Exceptions include partners in a business, members of LLCs, and shareholders who own more than 2% in S-corporations. Only employees may participate in a Healthcare or Dependent Care FSA.
Domestic partners are eligible to use an employee’s FSA only if they are also a dependent under IRS Code 152.
FSAs cannot discriminate in favor of highly compensated employees. Annual nondiscrimination testing is required and provided by Sterling.
If your plan has a rollover, you may move $550 of unused FSA funds to the following plan year.
The rollover doesn’t affect the following plan year’s maximum contribution amount. You can still contribute up to the annual limit allowed, even if you roll over funds. Your entire annual contribution is still available at the beginning of the plan year.
Run-out periods are not impacted by the rollover.
If your FSA plan has a run-out period, you have an extended time at the end of the FSA plan year to submit receipts for reimbursement. You can only get reimbursed for claims incurred during the previous FSA plan year. The run-out period is usually 90 days after the plan year ends.
If your FSA plan has a grace period, you have up to two-and-a-half months at the end of your plan year to spend unused FSA funds and incur new FSA eligible expenses. Any money that’s leftover at the end of the grace period is forfeited due to the “Use it or Lose it” rule. You cannot cash out any remaining FSA funds, as money can only be used for FSA eligible expenses. For example: If you had a December 31 FSA year deadline, your grace period would allow to use your FSA funds through March 15. A grace period is optional, and the specific deadline also depends on when your plan year ended.
IRS Code Section 152 has a two-prong definition of a dependent – qualifying child and qualifying relative. A qualifying child is any son, daughter, brother, sister, niece, nephew, or grandchild who:
- Will not be age 19 during the year (or 24, if a full-time student). The exception is in the case of a disabled child who is considered as satisfying the age requirement despite their actual age.
- Has the same principal address as the taxpayer for more than half of the year
- Does not provide over half of his/her own support
A qualifying relative is any individual who:
- Is not a qualifying child of any other person
- Has income less than the exemption amount (see your tax advisor for details)
- Receives over half of his or her support from the taxpayer
- If a non-relative, resides with the taxpayer the entire year
Yes. Sterling will provide nondiscrimination testing annually to make sure the employer is in compliance.
Highly compensated employees are defined as:
- One of the 5 highest paid officers
- Own more than 10% of the company
- One of the highest paid 25% of all employees
The CARES Act states that consumers can purchase OTC drugs and medicines with funds from their health savings account (HSA), flexible spending accounts (FSA) or health reimbursement arrangement (HRA). Consumers may also receive reimbursement for OTC purchases through those accounts. In addition, menstrual products are now considered a qualified medical expense, meaning consumers can pay for or be reimbursed for these products through an HSA, FSA or HRA. This provision is effective for purchases made after December 31, 2019, and for reimbursements of expenses incurred after December 31, 2019. It does not have an expiration date.
Yes. Participants can reduce or terminate their dependent care account elections under these circumstances, as their childcare needs have changed. However, we advise account holders to keep in mind that they may not need to change or revoke their plan elections, even if they are not incurring any new dependent care expenses. Account holders may be able to claim their full plan year elections once the shelter-in-place orders cease, as childcare expenses can often reach the $5,000 annual contribution limit within 2-5 months. Contact Sterling if you have any questions regarding dependent care account election modifications.
Yes, it is permissible for employers to extend the deadline for submission of claim documentation. There is no legal rule regarding the length of the runout period for an FSA. A runout period of 90 days or three months is standard, but nothing prohibits plan sponsors from allowing a longer runout period. The only specific requirement is that the participant must have incurred the expense during the plan year. If that is satisfied, the regulations say that “actual reimbursement of covered medical care expenses may be made after the applicable period of coverage.” If you do decide to extend the runout period, ensure you do so uniformly. Contact Sterling for help with this.