IRS Issues 2022 Inflation-Adjustments Limitations for Health FSAs, Commuter Benefits and Adoption Assistance

On November 10, 2021, the IRS issued Revenue Procedure 2021-45, providing certain cost-of-living adjustments for a wide variety of tax-related items, including health FSA contribution limits, transportation and parking benefits, qualified small employer health reimbursement arrangements (QSEHRAs), the small business tax credit and other adjustments for tax year 2022. Those changes are outlined below.

• Health FSA. The annual limit on employee contributions to a health FSA will be $2,850 for plan years beginning in 2022 (up $100 from 2021). In addition, the maximum carryover amount applicable for plans which permit the carryover of unused amounts is $570 (up $20 from 2021).
• Qualified transportation fringe benefits . For 2022, the monthly limit on the amount that may be excluded from an employee’s income for qualified parking increases to $280, as does the aggregate fringe benefit exclusion amount for transit passes (both up from $270 in 2021).
• QSEHRAs . For 2022, the maximum amount of reimbursements under a QSEHRA may not exceed $5,450 for self-only coverage and $11,050 for family coverage (an increase from $5,300 and $10,700 in 2021).
• Adoption assistance program . The maximum amount an employee may exclude from his or her gross income under an employer-provided adoption assistance program for the adoption of a child will be $14,890 for 2022 (a $450 increase from the 2021 maximum of $14,440). This exclusion begins to phase out for individuals with modified adjusted gross income greater than $223,410 and will be entirely phased out with $263,410 modified adjusted gross income.
• Small business health care tax credit. Some changes impact the small business health care tax credit since the maximum credit is phased out based on the employer’s number of full-time equivalent employees in excess of 10. For 2022, the average annual wage level at which the credit phases out for small employers is $28,700 (up $900 from 2021).

Employers with limits that are changing (such as for health FSAs, transportation/commuter benefits and adoption assistance) will need to determine whether their plans automatically apply the latest limits or must be amended (if desired) to recognize the changes. Any changes in limits should also be communicated to employees.

IRS Notice 2021-45 »