Many taxpayers will be able to contribute more money to workplace cafeteria plans and other tax-advantaged accounts in 2022. Accounts that will have higher contribution limits in 2022 include medical flexible spending arrangements (FSAs) and health savings accounts (HSAs). For FSAs, the annual contribution limit for most employees will be $2,850 in 2022, a $100 increase over the 2021 limit. The 2022 contribution limit for HSAs will be $3,650 (up from $3,600) for individuals, and $7,300 (up from $7,200) for families.
The IRS also reminds taxpayers that FSAs are generally subject to a “use it or lose it” rule, meaning that the taxpayer forfeits any funds remaining in the account at the end of the year. HSAs typically do not have this restriction, so funds in the account carry over from year to year.
In many cases, employers may allow either a grace period (until March 15) to use up FSA funds from the previous year, or a partial carryover of funds to the next year. The maximum carryover amount from 2022 to 2023 will be $570, up from $550 for 2021-2022. However, under COVID relief legislation enacted by Congress in February 2021, employers may offer their employees a higher 2021-2022 FSA carryover limit, or an extended grace period of up to 12 months.
If you have money remaining in your 2021 FSA, check with your employer’s benefits department about whether you have a carryover or grace period option.
A tax professional can help you determine how to use the increased contribution limits for 2022, and the special 2021 COVID relief rules, to get the most out of your FSA or HSA.
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