May 06, 2021
American Rescue Plan raises dependent care FSA contribution limits
President Biden signed the American Rescue Plan Act of 2021 into law on March 11, 2021. The Act increases 2021 contribution limits for dependent care flexible spending accounts (DCFSA) from the current $5,000 to $10,500 for single taxpayers and married couples filing jointly. It increases the limit from $2,500 to $5,250 for married taxpayers filing separately.
Employees who increase their pretax DCFSA contributions to the new 2021 maximum could see a potential tax savings of more than $3,500 this year (based on individual tax rate). The Internal Revenue Service (IRS) has not issued specific tax guidance or information about the increased contributions.
Employers are not required to allow employees to contribute the higher amounts. They can decide how much their employees can contribute up to the new maximum. If employers choose to allow employees to contribute the higher amounts, they will need to pass the updated contribution amounts for their employees on to Anthem through their existing contribution method.
The contribution limit increase applies only to the 2021 calendar year. This includes plans with effective dates between January 1, 2021, and December 31, 2021.
Please contact your Empire representative for more information.