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IRS Releases 2022 Fringe Benefit COLAs

The IRS recently released 2022 cost-of-living adjustments (COLAs) for a wide variety of tax-related limits, including those related to many popular fringe benefits. Here are some highlights:

Health Flexible Spending Accounts (FSAs): For 2022, the dollar limit on employee salary reduction contributions to health FSAs will increase from $2,750 to $2,850.

Qualified transportation fringe benefits: The monthly limit on the amount that may be excluded from an employee’s income for qualified parking benefits will be $280 (up from $270). The combined monthly limit for transit passes and vanpooling expenses also will be $280.

Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs): The maximum amount of payments and reimbursements under a QSEHRA will be $5,450 for self-only coverage and $11,050 for family coverage (up from $5,300 and $10,700, respectively).

Adoption assistance exclusion and adoption credit: The maximum amount that may be excluded from an employee’s gross income under an employer-provided adoption assistance program for the adoption of a child will increase to $14,890 (up from $14,400). In addition, the maximum adoption credit allowed to an individual for the adoption of a child will be $14,890 (also up from $14,400).

Both the exclusion and credit will begin to be phased out for individuals with modified adjusted gross incomes greater than $223,410 and will be entirely phased out for individuals with modified adjusted gross incomes of $263,410 or more.

Dependent Care Assistance Programs (DCAPs), also known as dependent care FSAs: The DCAP limit isn’t indexed for inflation. However, the amount was temporarily increased to $10,500 for 2021 only under the American Rescue Plan Act. It will return to $5,000 for 2022 and future years unless extended or otherwise changed by Congress.

Archer Medical Savings Accounts (MSAs): For Archer MSA-compatible high-deductible health coverage, the annual deductible for self-only coverage must not be less than $2,450 (up from $2,400) or more than $3,700 (up from $3,600), with an out-of-pocket maximum of $4,950 (up from $4,800). For family coverage, the annual deductible must not be less than $4,950 (up from $4,800) or more than $7,400 (up from $7,150), with an out-of-pocket maximum of $9,050 (up from $8,750).

Note that the Archer MSA pilot program expired at the end of 2007, and no new Archer MSAs can be established after that date. Many employers that previously offered Archer MSAs have switched to Health Savings Accounts, which are generally more favorable.

Now is a good time to determine whether your organization’s plans automatically apply the latest limits or need to be amended (if so desired) to recognize changes. Be sure to clearly communicate any revisions to employees. Contact us if you have questions about next year’s COLAs.

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