Compliance Alert: IRS Announces Updates to Section 125 Change Rules, HSA/HDHP Limits - Apex Benefits

Compliance Alert: IRS Announces Updates to Section 125 Change Rules, HSA/HDHP Limits

The IRS released Revenue Procedure 2020-32 to provide the inflation-adjusted limits for health savings accounts (HSAs) and high deductible health plans (HDHPs) for 2021.

The IRS is required to publish these limits by June 1 each year.

Limits include:

  • Maximum HSA contribution limit
  • Minimum deductible amount for HDHPs
  • Maximum out-of-pocket expense limit for HDHPs

Limits vary based on whether an individual has self-only or family coverage under an HDHP.

Eligible individuals with self-only HDHP coverage will be able to contribute $3,600 to their HSAs for 2021, up from $3,550 in 2020. Eligible individuals with family HDHP coverage will be able to contribute $7,200 to their HSAs for 2021, up from $7,100 in 2020.

The minimum deductible amount of HDHPs remains the same for 2021 plan years ($1,400 for self-only coverage and $2,800 for family coverage). However, the HDHP maximum out-of-pocket expense limit increases to $7,000 for self-only coverage and $14,000 for family coverage.

IRS Guidance on Section 125 Mid-year Election Change Rules

The IRS released Notice 2020-29, which provides temporary flexibility for mid-year election changes under a Section 125 cafeteria plan during calendar year 2020. The changes are designed to allow employers to respond to changes in employee needs as a result of the COVID-19 pandemic.

This guidance relates to mid-year elections for self-insured and fully insured employer-sponsored health coverage, health flexible spending arrangements (health FSAs) and dependent care assistance programs (DCAPs).

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