IRS Announces Health FSA Limits Will Remain Constant for 2021

IRS Announces Health FSA Limits Will Remain Constant for 2021

The Internal Revenue Service released Revenue Procedure Notice 2020-45, establishing that in 2021, limits for health flexible spending accounts (FSAs) will remain the same as in 2020.  The notice also includes other restrictions, penalty amounts, and tax limits related to employee benefit plans.

Just as in 2020, employees will be able to contribute $2,750 to health FSAs.  This limit applies to traditional FSAs and limited purpose FSAs that work in conjunction with health savings accounts and can only reimburse for dental and vision services. Earlier this year, the IRS announced an increase of the health FSA carryover limit to $550, and that limit will also remain constant throughout the 2021 calendar year.

Some of the other tax limit and penalty amount changes for 2021 that may be important to your business include: 

Qualified Small Employer Health Reimbursement Arrangements (QSEHRA): The notice increases the maximum reimbursement to $5,300 for individual coverage and $10,700 for family coverage.  

Small Business Tax Credit: For 2020, the average annual wage level at which the tax credit for qualified small employers who offer group health insurance to employees purchased through the SHOP exchanges begins to phase out will be $27,800.00, a $200 increase from 2020.

Qualified Transportation Fringe Benefits: The amount of money employees can receive pre-tax for parking expenses, public transit passes, and vanpooling costs will remain $270 in 2021.

Adoption Assistance Exclusion and Adoption Credit: The maximum allowable benefit for an employer-sponsored adoption assistance program will be $14,440 in 2021. The individual adoption tax credit maximum also is $14,440 for the year ahead.

Medical Saving Accounts (MSAs): There are some 2021 changes to the high-deductible health coverage limits for HDHPs that are compatible with Archer MSA (note-these limitations do not impact qualified HDHPs that pair with Health Savings Accounts).  For MSAs, the deductible limit range for self-only coverage will be $2,400-$3,600 in 2020, and the out-of-pocket maximum is $4,800. For family coverage that pairs with an MSA, the annual deductible range is $4,800-$7,150, with an out-of-pocket maximum of $8,750.

Long-Term Care Premiums: For the 2021 tax year, the limitations on the amount of qualified long-term care premiums that can be considered a qualified medical expense are as follows:

  • Age 40 or less – $450
  • Over Age 40 but not more than 50 – $850
  • Over Age 50 but not more than 60 – $1690
  • Over Age 60 but not more than 70 – $4520
  • More than Age 70 – $5640

Employer Reporting Penalties:  The fines for employers and self-funded health plans that fail to provide health coverage information to the federal government and employees via Forms 1094 and 1095 B and C have increased as follows:

Failure to File Information Returns with the IRS (Forms 1094 B or C) for entities with annual gross receipts for the most recent three taxable years of more than $5,000,000:

  • Corrected return or late with 30 days of the required filing date: $50 per return with a penalty cap of $571,000.00
  • Corrected or late return that is filed after the 30th day but before August 1: $110 per return with a penalty cap of $1,713,000.00
  • General failure to file a correct or timely return beyond August 1: $280 per return with a penalty cap of $3,392,000.00 

Failure to File Information Returns with the IRS (Form 1094 B or C) for entities with annual gross receipts for the most recent three taxable years of less than $5,000,000:

  • Corrected return or late with 30 days of the required filing date: $50 per return with a penalty cap of $199,500.00
  • Corrected or late return filed after the 30th day, but before August 1: $110 per return with a penalty cap of $571,000.00.
  • General failure to file a correct or timely return beyond August 1: $280 per return with a penalty cap of 1,142,000.00. 

Failure to provide correct statements (Forms 1095 B and C) for entities with annual gross receipts for the most recent three taxable years of more than $5,000,000:

  • Corrected return or late with 30 days of the required filing date: $50 per return with a penalty cap of $571,000.00
  • Corrected or late return that is filed after the 30th day but before August 1: $110 per return with a penalty cap of $1,713,000.00
  • General failure to file a correct or timely return beyond August 1: $280 per return with a penalty cap of $3,392,000.00 

Failure to provide correct statements (Forms 1095 B and C) for entities with annual gross receipts for the most recent three taxable years of less than $5,000,000:

  • Corrected return or late with 30 days of the required filing date: $50 per return with a penalty cap of $199,500.00
  • Corrected or late return filed after the 30th day, but before August 1: $110 per return with a penalty cap of $571,000.00.
  • General failure to file a correct or timely return beyond August 1: $280 per return with a penalty cap of 1,142,000.00.
print

0 Comments