IRS Announces 2022 Contribution Rates, Releases Guidance on Taxing Dependent Care Assistance

Last week, the Internal Revenue Service (IRS) provided information for some 2021 and 2022 benefits in two separate announcements.

On May 10, The IRS issued guidance on the taxability of dependent care assistance programs for 2021 and 2022, clarifying that amounts attributable to carryovers or an extended period for incurring claims generally are not taxable. Normally dependent care flexible spending accounts are only applicable to a calendar year, but legislation earlier in 2021 allowed employers to amend their plans to extend the time employees can use their benefits, as well as change their deductions mid-year. The recent guidance states that if these dependent care benefits would have been excluded from income if used during tax year 2020 (or 2021, if applicable), these benefits will remain excludible from gross income and are not considered wages for 2021 and 2022. Employers should advise employees to consult a personal tax advisor before making decisions about dependent care contributions.

The IRS also released the HSA contribution limits for 2022. In Revenue Procedure 2021-25, the IRS says that for calendar year 2022, the annual limitation on deductions for an individual with self-only coverage under a high deductible health plan is $3,650. For calendar year 2022, the annual limit on deductions for an individual with family coverage under a high deductible health plan is $7,300. This is an increase of $50 and $100 respectively. The maximum out-of-pocket amounts went up in the same increments. They will be $7,050 self-only coverage under a high deductible health plan and $14,100 for an individual with family coverage under a high deductible health plan.

For calendar year 2022, a “high deductible health 2 plan” is defined as a health plan with an annual deductible that is not less than $1,400 for self-only coverage or $2,800 for family coverage. The annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) do not exceed $7,050 for self-only coverage or $14,100 for family coverage. Employers should consult with their brokers when it comes time to renew or adjust benefits plans for 2020.