Open enrollment season is here again, which means it’s your chance to review and renew your health care benefits.
This year, there is one area where you will find some pretty significant changes: the Dependent Care Flexible Spending Account, or DCFSA.
Dependent Care FSA: What’s New
If your employer offers a Dependent Care FSA option, it’s going to look different this year. The Dependent Care Flexible Spending Account (DCFSA), which also allows account holders to set aside pre-tax money to pay for qualified care expenses for dependents. There are three main changes you should know about:
- The 2022 DCFSA limit increased from $5,000 to $10,500 for single taxpayers. This is a huge jump that applies for the plan year of 2021.
- Along with the limit increase comes more time to use that money. The Consolidated Appropriations Act allows for unused DCFSA money to roll over from 2020 to 2021 plans, and from 2021 to 2022 plans.
- Typically, the maximum age for a child to qualify for dependent care through an FSA is 13. However, due to COVID-19, the age limit was bumped to age 14 in 2021 for any unused 2020 money.
Note that these changes are temporary, and are a response to the enormous changes and challenges that came along with the pandemic. The COVID-19 health crisis is still well underway in the U.S., so there might be more changes and allowances made for next year.
That’s why reviewing and understanding your benefits is so important, because occasionally there are major changes that could impact you and your family.
HSA and FSA Changes in 2021
If you’re considering opening a Health Savings Account or a Flexible Spending Account this year, it’s important to know what your employer offers, and what each entails. Here’s a quick review of those accounts:
A Health Savings Account (HSA) is a pre-tax account that allows you to put money aside for qualified health care costs. It’s usually available to people who have high-deductible health insurance. The current annual limit is $3,600 for self-only, and $7,200 for a family. Any unused money rolls over to the next year.
A Flexible Spending Account (FSA) is also funded with pre-tax money, and it can also be used to pay for qualifying health care costs. Unlike HSAs, however, it is usually meant for people with low-deductible health insurance, and all of the unused money does not roll over to the next year. There can be a 2.5 month grace period to spend remaining funds, or an allowance to carry over $550 to the following year.
Some employers do offer an HSA option, plus a dental- and vision-only FSA.
Due to the pandemic, the FSA rules have changed a bit this year. Instead of only having a 2.5 month grace period, employers can offer up to 12 additional months to spend money from 2020 or 2021 plans, and that carryover amount is not limited.
If you claim someone as a dependent who lives with you for more than eight hours per day – whether they are a child, or a disabled or elderly person – you may be eligible for a DCFSA through your employer.
Open Enrollment Preparation
The key to maximizing your benefits is preparation. It can be intimidating to sort through all the materials you receive every year at open enrollment, but it’s worth the effort.
Plus, you don’t have to do it alone. Most employers appoint someone or bring someone in to talk to employees about their benefits. But if you’re still unsure, you can work with a financial advisor to help you determine which benefits would be best for you and your family.
Here are more resources on the blog to help you prepare for open enrollment:
How to Prepare for Open Enrollment This Year
Open enrollment: What to Look for in Mid-Career
Open enrollment: Why You Should Review Your Benefits Every Year
About Your Richest Life
At Your Richest Life, Katie Brewer, CFP®, believes you too should have access to financial resources and fee-only financial planning. For more information on the services offered, contact Katie today.
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