Posted 5 months ago - by

IRS Released New Limits for 2020 Pre-Tax Plans

The 2020 contribution limits for your favorite pre-tax accounts have been finalized by the IRS:

Flexible Spending Account (FSA)

  • $2,750 Medical
  • $5,000 Dependent care

Health Savings Account (HSA)

  • $3,550 Individual
  • $7,100 Family

Commuter Plan

  • $270/month Mass Transit
  • $270/month Parking

Health Reimbursement Arrangement (HRA)

  • No limit

Qualified Small Employer Health Reimbursement Arrangement (QSEHRA)

  • $5,250 Individual
  • $10,600 Family

You can download our free cheat sheet for more details on all these plans.

Save it. Print it. Frame it. It’s yours to keep!

And in case you need a refresher course, here’s a quick breakdown of our pre-tax benefit plans:

FSA – Flexible Spending Account

  • Employees can contribute pre-tax dollars into this account
  • Employers can also contribute non-taxable funds to this account
  • Account “owner” is the employer
    • The employee cannot take this account with them if they leave the company
  • Use or lose account
    • If an employee does not use all the funds during the plan year (or leaves the company), they lose the funds they have contributed (unless they have the rollover option)
  • There are three types of FSA accounts
    • Medical FSA
      • Used for eligible medical, dental, and vision expenses
    • Limited Purpose FSA
      • Used for dental and vision expenses only – usually paired with a Health Savings Account (see below)
    • Dependent Care
      • Used for dependent children’s childcare (age 13 or under) or a dependent’s caregiver

HSA – Health Savings Account

  • Paired with a high-deductible health plan
  • Employees can contribute pre-tax dollars into this account
  • Employers can also contribute non-taxable funds into this plan
  • Account “owner” is the employee
    • The account follows the employee if they leave the company
  • The funds in the account roll-over every year
    • This is not a use or lose plan
  • The account is also a savings/retirement plan
    • It accrues interest
    • Funds can be invested
    • Once the account owner turns 65, they have access to the funds similar to that of a 401K account
  • Cannot be paired with a Medical FSA
    • The IRS does not allow employees to place pre-tax funds into both a Medical FSA and an HSA

HRA – Health Reimbursement Arrangement

  • Employers contribute non-taxable funds into this account
    • Employees do not contribute into an HRA
  • Employer designs the plan
    • The Employer has say on what employees can use the HRA for and when they can use it
  • Account “owner” is the employer
    • Employees cannot use the account once they leave the company
  • Three different types of accounts
    • Integrated HRA
      • Usually linked with a health plan
    • Dental/Vision (Excepted benefit) HRA
      • For dental and vision expenses only
    • Retiree HRA
      • For use by retirees

QSEHRA – Qualified Small Employer Health Reimbursement Arrangement

  • Health benefit for small businesses with fewer than 50 employees
  • Company-funded, tax-free
    • Employers can reimburse employees tax-free for their medical expenses, including personal insurance premiums
    • All reimbursements are free of payroll tax for the business and its employees
    • Reimbursements can be free of income tax for employees if the employee is covered by a policy providing MEC (minimum essential coverage)
  • A notice must be sent to employees 90 days before the start of the plan year
    • Statement of employee’s allowed benefit
    • Statement advising employees they are responsible for notifying the insurance exchange of their HRA coverage amount to determine eligibility for the premium tax credit
    • Statement that employee must be covered by minimum essential coverage for any expenses to be free of income tax

Commuter Plan

  • Used for expenses to get to and from work
  • Account “owner” is the employer
    • Employees cannot use the account once they leave the company
  • Transit
    • Pre-tax dollars can be used towards vanpools and mass transit (subway, buses, trains etc.)
      • Mass transit purchases must be made with the benefits debit card because the IRS does not allow cash reimbursement.
    • $270 per month maximum
    • Cannot be paired with a bicycle account
  • Parking
    • Pre-tax dollars can be used towards parking garages at mass transit stations and at work
    • $270 per month maximum
  • Bicycle
    • Used for initial purchase of gear and monthly bicycle maintenance
    • $20/month maximum
    • Employer provides the reimbursement instead of employees funding the account with pre-tax dollars
    • Cannot be paired with a Transit account

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This article provides general information and shouldn’t be construed as legal or HR advice. Since employment laws may change over time and can vary by location and industry, please consult a lawyer or HR expert for advice specific to your business. You can also contact Payroll Systems to inquire about our HR support services.