The IRS announced that the 2021 Flexible Spending Account (FSA) contribution limit will remain at $2,750.
A medical FSA is a personal expense account that works with an employer's health plan, allowing employees to set aside a portion of their salary, pretax, to pay for qualified medical expenses. An FSA offers employees a smart way to help plan for health care costs and save money on their taxes at the same time. Employers benefit too, with reduced employee payroll taxes.
How much should employees contribute to their FSAs?
When employees are deciding how much to contribute to their FSAs, they should consider the following questions:
- Do they expect to have medical, dental, or vision expenses that are not fully covered by insurance?
- Do they, their spouse, or an eligible tax dependent have an ongoing condition that requires expensive medication or frequent visits to a physician?
- Do they, their spouse or eligible dependents need prescription eyeglasses, sunglasses, contact lenses and/or lens solution?
Employees should be conservative in their estimates because money left in the account at the end of the year may be forfeited unless their employer allows an FSA rollover or grace period.
To learn more about FSAs, visit the Further Learning Center.