Introduction
In addition to the usual inflation-based changes to certain tax-advantaged savings plans, 2021 sees updates to key rules about carryover amounts and mid-year election changes.
The 2021 annual contribution limits for health savings accounts (HSAs) have been increased as have out-of-pocket maximums for high-deductible health plans (HDHPs). Rules about carryover amounts and mid-plan year election changes for flexible spending accounts (FSAs) have seen big updates under the Consolidated Appropriations Act passed in late 2020.
FSA – Limits and Updates for 2021
Contributions – Health FSAs
The contribution limit for health FSAs is unchanged for 2021. Any changes are inflation-based, and the calculation did not reach the necessary $50 change threshold required under ACA rules.
The 2021 employee contribution remains set at $2,720.
Carryover and Election Changes – Dependent and Health FSAs
Initially, the carryover amount from 2020 into 2021 – for FSA plans that include the provision – increased to $550.
With the passage of the Consolidated Appropriations Act at the end of 2020, however, employers can offer greater flexibility for both rollovers and mid-year election changes. These changes apply to both dependent and health FSAs.
Provided your employer updates their plan to include these new options, they allow
- Unlimited carryover of FSA balances from 2020 to 2021 and from 2021 to 2022
- Changes to your contribution election amount mid-year without requiring one of the usual qualifying life events (such as marriage or birth/adoption of a child). So if you find out your expenses for 2021 will be a lot different from what you originally elected, you can make a change (up to the annual limit, of course).
Check with your HR office to see if your employer will be implementing these changes. They could certainly make planning your medical expenses a little less stressful this year.
HSA – Limits for 2021
Contribution Limits
The HSA contributions limits have been increased for 2021:
- Self-only coverage: $3,600
- Family coverage (includes self + spouse): $7,200
The catch-up provision if you’re 55 or older by the end of 2021 is unchanged at $1,000.
Out-Of-Pocket Maximums
You must be enrolled in a High Deductible Health Plan (HDHP) in order to contribute to an HSA. The required minimum deductibles for a plan to be considered an HDHP are unchanged for 2021:
- Self-only coverage: $1,400
- Family (includes self + spouse): $2,800
The maximum out-of-pocket amounts have been changed, however. This is how much in qualified expenses you have to pay yourself before your plan starts paying everything at 100%. Deductibles and co-pays count, but your premiums don’t.
- Self-only coverage: $7,000
- Family (includes self + spouse): $14,000
Of course, your particular plan can have a higher deductible and/or a lower out-of-pocket max. The IRS is simply setting a floor and a ceiling within which plans must fit. Check with your plan administrator or in the provided materials for details on what you have.
Miscellaneous Changes
The IRS has also summarized other key changes to HDHPs, HSAs, and health FSAs as provided for in the CARES Act passed in Spring 2020. A couple of particular interest are
- The definition of “Qualified Medical Expenses” has been expanded for expenses incurred after December 31, 2019. Save your receipts to submit for reimbursement with your other claims. The new items include
- Over-the-counter products and medications
- Menstrual care products (tampons, pads, liners, cups, sponges, etc.)
- Starting January 1, 2020, HDHP plans can temporarily cover remote care options such as telehealth (e.g., a video visit with your doctor) without requiring you to meet your usual deductible first.
- This means your plan can cover such care under a lesser deductible or at no out-of-pocket cost to you.
- The provision is effective for benefit plan years that start on or before December 31, 2021. So if your benefit plan is on a calendar year, you can take advantage of the improved telehealth coverage through the end of 2021.
