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FSA contribution limits 2021

Pre-tax FSA dollars can be very helpful in paying for eligible health care expenses, but there’s a limit to how much money you can contribute annually.

In 2020, the health care FSA contribution limit was $2,750 a year. At the end of October, the IRS released the contribution limit for 2021, and it will remain the same at $2,750.

When can I contribute to my FSA?

This is the most important information to remember about your FSA: In most cases, you can only set your contribution amount at the beginning of each benefit year, and it can’t be changed. However, in some cases, if you have a qualifying life event (e.g., a marriage or a new baby), you may be able to adjust your FSA contributions. You would need to check with your benefits administrator or HR representative to be sure.

Your FSA plan takes effect at the beginning of your benefit year — January 1 in most cases — meaning you’ll be able to spend account funds until the next benefit year starts.

Before that date, there will be an enrollment period when you’ll be able to specify the total amount you would like to contribute to your account for the following year.

The amount you specify will be automatically deducted in equal installments from your paychecks. You’re not able to change that amount from month to month, and if you don’t use the entire amount by the end of your benefit year, you may lose it entirely.

All of this is to say that contributing to your FSA takes planning. You’ll need to know your expected medical, dental and vision care costs for the year ahead. This can be easier than it sounds if you tend to have predictable expenses.

What happens if I start a new job?

Unlike HSA funds, money in your FSA will not transfer from one job to another. If you know you’ll be starting a new job, be sure to spend your FSA dollars so you don’t lose them. Like any unspent funds at the end of the year, your employer also gets to keep any money leftover in your account when you leave.

But what happens if you want to open a new FSA at your new job?

The $2,750 max occurs on a per-employer basis, so you get a fresh start when you start your new job. This means that, even if you contributed the $2,750 maximum at your previous job, you can contribute up to $2,750 again.

But be careful — you could have significantly less time to “pay off” your contributions to this new FSA.

For example, if your contributions start in the beginning of October, your entire contribution will be deducted from your paycheck in less than 3 months. If you elect the $2,750 maximum, more than $450 would be deducted from each biweekly paycheck.

SEE RELATED: FSA vs. HSA

How much should I contribute to my FSA?

Deciding how much to contribute to an FSA can be difficult and frustrating. But with a bit of careful planning, you can minimize the odds of having any money leftover (and likely lost) at the end of the year.

Here’s an example:

Let’s say that, in a given year, you have a $100 eye exam and purchase contact lenses that will cost about $125. And you have your eye on a $150 pair of prescription sunglasses for summertime.

Once you figure out how much your vision insurance (if applicable) will cover for these expenses, you can take the remaining costs and contribute that grand total toward your FSA for these eligible purchases.

Without vision insurance, you would consider adding $375 to your FSA, on top of any known medical expenses you can think of. These include family doctor, specialist and dentist appointments, along with certain medications and many other eligible health and vision expenses.

Another thing to keep in mind is FSA rollover rules. While completely optional, your employer can allow up to $550 in 2021 to roll over to the next year. The rollover can also be less than $550, depending on what they select. Sometimes a rollover option will be replaced by a 2.5-month spending grace period — or neither option altogether.

If you contribute the entire 2021 FSA limit amount to your account, plan on about $230 being withheld from your paychecks every month. You don’t have to wait to use these funds — you have access to the entire contribution amount the day your FSA year begins.

Dependent care FSA contribution limits in 2021

A dependent care FSA (DCFSA) uses pre-tax money to pay for services like day care, babysitting, preschool, summer camp, and before- or after-school programs. These expenses only apply to children under age 13.

This FSA can also be used to pay for expenses relating to someone who is physically or mentally disabled when they are listed as a dependent and actively live with the account holder. There is no age limit for this benefit.

Dependent-care benefits require a separate account and are not included in a traditional health care FSA. The annual maximums are as follows:

  • In 2021, a dependent care FSA has a contribution limit of $5,000 a year for an individual or married couple filing jointly.

  • If a married couple files separately, a $2,500 contribution limit applies to the DCFSA.

Dependent care FSAs cannot be “double-dipped,” which means that a married couple filing jointly cannot contribute more than $5,000 combined, even if they have separate FSA accounts with separate employers.

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