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2022 Health FSA Contribution Cap Rises to $2,850

Late announcement left many using 2021 limit during open enrollment

A pharmacist is handing over a credit card to a customer.

Employees can put an extra $100 into their health care flexible spending accounts (health FSAs) next year, the IRS announced on Nov. 10, as the annual contribution limit rises to $2,850, up from $2,750. But with open enrollment for the 2022 benefits year already under way at many organizations, the increase may have come too late for some employees to take advantage of it.

If the employer's plan permits the carryover of unused health FSA amounts, the maximum carryover amount rises to $570, up from $550, but COVID-19 relief extends the allowable carryover amount further, as discussed below.

Tax-exclusion limits for employer-sponsored commuting benefits and adoption assistance programs are also rising for 2022 due to cost of living adjustments (COLAs), the IRS announced in Revenue Procedure 2021-45.

The IRS, on Nov. 4, separately announced 2022 contribution limit COLAs for 401(k) and similar defined contribution plans and annual limit adjustments for defined benefit pension plans.

Health FSAs

The chart below shows the adjustment in health FSA contribution limits for 2022. Employers may set lower limits for their workers.

Health Flexible Spending Accounts
(Includes limited-purpose FSAs)
Maximum salary deferral contribution
Maximum carryover amount

*The Consolidated Appropriations Act, 2021, allowed unlimited carryovers of health FSA balances into the next plan year for plan year 2021.


$550 (as indexed, but carryover of full unused balance allowed)*
  (indexed amount)

Source: IRS Revenue Procedure 2021-45.

The limit also applies to limited-purpose FSAs that are restricted to dental and vision care services, which can be used in tandem with health savings accounts (HSAs).

The IRS released 2022 HSA contribution limits in May, giving employers and HSA administrators plenty of time to adjust their systems for the new year. The individual HSA contribution limit will be $3,650 (up from $3,600) and the family contribution limit will be $7,300 (up from $7,200).

A Late Notice

When benefit plan limits for the upcoming year are released after open enrollment periods have begun, "many employers just keep the previous year's limits in place for ease of administration, and lag a year behind," said Kim Buckey, vice president of client services at DirectPath, a benefits advocacy and education firm.

Some employers, however, are willing and able to adjust the their systems to accept the higher limit for 2022 and provide updated information on the change to employees, so they can take full advantage of their FSAs. In that case, although "most enrollment materials have been finalized and distributed, employers should leverage more immediate communication channels—such as e-mail, social media and virtual benefits fairs—to get the word out," Buckey said,

She added, "This is yet another reason employers should disseminate enrollment information online as much as possible—it enables quick and easy updating when information changes at the last minute."

Danielle Capilla, vice president of compliance, employee benefits, at Alera Group, a network of insurance and financial services firms, also noted that "print deadlines and benefit enrollment systems require earlier decision making by employers who host early fall enrollment."

Like many employers and service providers, Capilla expressed the hope that "in future years, the IRS will release contribution limits earlier, as many employers are eager to wrap up open enrollment in late October to early November. More than ever employers are grappling with last minute enrollment changes due to various temporary adjustments to contribution limits and roll-overs on health FSAs and dependent care accounts that were permitted due to COVID-19."

Bill Sweetnam, legislative and technical director of the Employers Council on Flexible Compensation (ECFC) in Washington, D.C., advised employers not to let the late announcement stop them from offering employees the higher contribution rate for 2022.

At most organizations, open enrollment was still ongoing as of the second week of November, he noted, in which case "employees would not be precluded from electing the maximum FSA amount," provided that employers notify them of the available increase and adjust their enrollment platforms.

What If Open Enrollment Has Begun (or Concluded)

Hub International, a benefits broker and advisory firm, recommends that plan sponsors take these steps if their open enrollment has started or finished:

  • Review your plan document. If it automatically applies the increased limit, then you may need to give employees who elected the "old" maximum a chance to increase.
  • If instead your plan says the limit is what was communicated during open enrollment, you may not need to allow any changes, although you may chose to do so.
  • You can allow changes before the plan year begins (but check your cafeteria plan document for any limitations).
  • Consider how much time you need to load election changes into your payroll system.
  • Once the plan year begins, employees' elections are locked in.

To adjust elections automatically in the future, Hub advised:

  • Make sure your cafeteria plan document automatically applies the updated IRS limit for employees who elected the "old" maximum.
  • Revise open enrollment materials to say that an election of the "old" maximum will be treated as an election for the maximum, as adjusted by the IRS.

Carryover Amounts, Grace Periods and Pandemic Relief

Health or dependent care FSA funds that are not spent by the employee within the plan year can include a two-and-a-half-month grace period to spend down remaining FSA funds, if employees are enrolled in FSAs that have adopted the grace period option.

Health FSAs have an additional option of allowing participants to carry over unused funds at the end of the plan year, up to an inflation-adjusted limit set by the IRS, and still contribute up to the maximum in the next plan year. Health FSA plans can elect either the carryover or grace period option but not both.

"The FSA carryover limit continues to be 20 percent of the annual contribution limit, although special COVID-19 relief gives employers the option to allow employees to carry over their unspent 2021 FSA balance into 2022," noted Timothy P. Brechtel, a partner at law firm Jones Walker' in New Orleans, and Shawn J. Daray, an associate at the firm.

As part of COVID-19 relief, the Consolidated Appropriations Act, 2021, signed into law at the end of 2020, and IRS Notice 2021-15, issued February 2021, addressed how employers could:

  • Allow participants in health care or dependent care FSAs to carry over unused balances from a plan year ending in 2020 to a plan year ending in 2021, and to carry over unused balances from a plan year ending in 2021 to a plan year ending in 2022. An employer could choose to provide either, or neither, of these carryover extensions.
  • Extend to 12 months the grace period for spending unused FSA funds for plan years ending in 2020 or 2021.
  • Allow employees who stopped participating in a health FSA plan during 2020 or 2021 to continue to be reimbursed from unused balances through the end of the plan year in which their participation ended, including any extended grace periods.


If employers provide health care FSA contributions, this amount is in addition to the amount that employees can elect. Employees can elect up to the IRS limit and still receive the employer contribution in addition.

As explained by Core Documents, a provider of IRS-compliant plan documents, the IRS puts a limit on an employer's contribution to a health FSA based on how much the employee contributes:

  • An employer may match up to $500 whether or not the employee contributes to a health FSA.
  • Starting at $501, employers may only make a dollar-for-dollar match to the employee’s contribution.

Dependent Care FSAs

A dependent care FSA (DC-FSA) is a pretax benefit account used to pay for dependent care services such as day care, preschool, summer camps and non-employer-sponsored before or after school programs. Funds may be used for expenses relating to children under the age of 13 or incapable of self-care who live with the account holder more than half the year. 

These plans may also be referred to as dependent care assistance plans (DCAPs) or dependent care reimbursement accounts (DCRAs).

In general, an FSA carryover only applies to health FSAs, but COVID-19 relief permitted a carryover of unused balances for DC-FSAs into the next plan year for plan years 2020 and 2021. Also, for these plan years employers could (but were not required to) amend their plans to allow employees to prospectively enroll in, increase, decrease or revoke their DC-FSA elections midyear, regardless of whether they experienced a permitted change in status event.

In addition, the American Rescue Plan Act, signed into law on March 11, 2021, raised pretax contribution limits for DC-FSAs for calendar year 2021. The DC-FSA annual limits for pretax contributions increased to $10,500 (up from $5,000) for single taxpayers and married couples filing jointly, and to $5,250 (up from $2,500) for married individuals filing separately. The higher limits applied to the plan year beginning after Dec. 31, 2020 and before Jan. 1, 2022.

Dependent Care FSAs (DC-FSAs) also called Dependent Care Assistance Plans (DCAPs)20222021Change
Maximum salary deferral
(single taxpayers and married couples filing jointly)
$5,000 (as indexed, but raised to $10,500)
no change (indexed amount)
Maximum salary deferral
(married couples filing separately)

*The American Rescue Plan Act raised allowable pretax contribution limits for DC-FSAs for calendar year 2021 only. 


$2,500 (as indexed, but raised to $5,250)*
no change (indexed amount)

Source: IRS Revenue Procedure 2021-45.

For 2022, the DC-FSA maximum, which is set by statute and is not subject to inflation-related adjustments, returns to $5,000 a year for single taxpayers and married couples filing jointly, or $2,500 for married people filing separately. Married couples have a combined $5,000 limit, even if each has access to a separate DC-FSA through his or her employer.

Maximum contributions to a DC-FSA may not exceed these earned income limits:

  • For single account holders, the earned income limit is their salary excluding contributions to their DC-FSA.
  • For married account holders, the earned income limit is the lesser of their salary excluding contributions to their DC-FSA or their spouse's salary.

Employers can also choose to contribute to employees' DC-FSAs. However, unlike with a health FSA, the combined employer and employee contributions to a DC-FSA cannot exceed the IRS limits noted above.

A separate tax code child and dependent care tax credit cannot be claimed for expenses paid through a DC-FSA, as "double dipping" is not permitted.

Elder care may be eligible for reimbursement with a DC-FSA if the adult lives with the FSA holder at least 8 hours of the day and is claimed as a dependent on the FSA holder's federal tax return.

[SHRM member-only HR Q&A: What is a dependent care assistance plan (DCAP)?]

Commuting Benefit Amounts

Employer-funded parking and mass-transit subsidies are tax-exempt for employees. Using pretax income, employees can also pay their own mass-transit or workplace parking costs through an employer-sponsored salary deferral program.

These expenses include the value of mass-transit passes and van pooling services, and parking on or near the business worksite or a location from which employees commute to work by driving and then using mass transit.


Qualified Transportation Benefit Exclusion (monthly limits)20222021Change
Transit passes and van pool services
+$10 per month
Qualified parking$280$270
+$10 per month

Source: IRS Revenue Procedure 2021-45.


The ability to pay transit expenses with pretax dollars, within the annual limit, "should be welcomed by employees with high commuter costs, such as those who rely on urban mass transit systems," said Danielle Capilla, director of employee benefits compliance at Alera Group, a network of insurance and financial services firms.

Adoption Assistance

For 2021, the maximum amount of an employer subsidy for qualified child-adoption expenses that can be excluded from an employee's gross income is $14,890, up from $14,400 for 2021.

Excludable reimbursements must be "necessary and reasonable expenses" related to adopting a child, according to the IRS. Qualified adoption expenses, however, don't include expenses that employees pay to adopt their spouse's child.

The amount excludable from an employee's annual earnings begins to phase out for employees with modified adjusted gross income higher than a set limit, adjusted annually by the IRS, and is completely phased out for those with modified adjusted gross income above the top of the phase-out range.

Adoption Benefits
(Annual limits)
Excludable amount
Phase-out income thresholds:   
Phase-out begins$223,410
Phase-out complete$263,410

Source: IRS Revenue Procedure 2021-45.


"Adoption benefits typically include some combination of financial assistance, information and referral services, and paid or unpaid leave," according to the Society for Human Resource Management's members-only toolkit Managing Adoption Assistance Benefits. "Adopting a child from foster care may cost about $2,500, domestic private adoptions can cost up to $40,000, and international adoptions can cost up to $50,000. Costs may include public or private agency fees, court costs, legal fees and counseling fees."

Employer programs can provide funds to reimburse adoption costs that exceed the annual limit, although employees will owe income taxes on any extra assistance they received.

Adoption Tax Credit vs. Employer Assistance

The tax code provides a separate income-tax credit for qualified adoption expenses. For 2022, the maximum credit is $14,890 per child—the same as the maximum nontaxable reimbursement by an employer's qualified adoption-assistance program. Tax credits larger than an employees' tax liability can be carried forward for up to five years.

Employees may take advantage of both the tax credit and the tax exclusion for employer reimbursements—but not for the same expenses.

Because employer-provided adoption aid is subject to FICA payroll taxes, some financial planners advise that high-income employees consider using the tax credit first, although employees who need upfront funds to pay expenses may benefit more from an employers' program.

[Need help with legal questions? Check out the new SHRM LegalNetwork.]

Qualified Small Employer HRAs

For taxable years beginning in 2021, to qualify as a qualified small employer health reimbursement arrangement (QSEHRA), the arrangement must provide that the total amount of payments and reimbursements by employers for any year cannot exceed $5,450 for individual coverage or $11,050 for family coverage, Revenue Procedure 2021-45 states.

QSEHRA Coverage
(Annual limits)




Source: IRS Revenue Procedure 2021-45.


QSEHRAs first became available in 2017 after the enactment of the 21st Century Cures Act. They allow small employers—those with fewer than 50 full-time or equivalent employees—to give their workers money tax-free to purchase individual health policies, which is not allowed with a traditional HRA or an HSA. The coverage can be purchased on an Affordable Care Act marketplace exchange or through an insurance broker.

QSEHRA funds can be used for out-of-pocket medical costs and to pay premiums on Affordable Care Act marketplace plans.

"For employees who become eligible for the QSEHRA midyear, the limits must be prorated to reflect the total amount of time the employee is eligible," noted PeopleKeep, a provider of QSEHRAs and other health accounts. "For example, a self-only employee who is eligible for the QSEHRA for eight months in 2022 could receive up to $3,633.28 through the benefit that year," the firm noted.


Related SHRM Articles:

2022 Benefit Plan Limits & Thresholds Chart, SHRM Online, November 2021

For 2022, 401(k) Contribution Limit Rises to $20,500, SHRM Online, November 2021

2022 Wage Cap Rises to $147,000 for Social Security Payroll Taxes, SHRM Online, October 2021

IRS Announces 2022 Limits for HSAs and High-Deductible Health Plans, SHRM Online, May 2021

[Visit SHRM's resource page on Open Enrollment.]


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