Flexible Spending Account (FSA) Contribution Limits 2020


The IRS has announced that the maximum contribution limit for FSAs in 2020 will now be $2,750. Employees can contribute this amount to their health savings accounts. Employees can also use FSA for limited-purpose dental/vision care only if they use them simultaneously with an HSA plan.


The maximum contribution level for FSAs has been $2700 per year since 2019. The new limit of $2750 is 1.85% higher than that amount. This new limit will take effect in 2020 when it goes into law. This change could result from rising prescription drug prices as Americans are increasing their use of Health Savings Accounts to offset those costs.

Flexible Spending Account (FSA)

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FSA annual rollover

After the New Year, employers can no longer allow up to $500 in unused health FSA balances to roll over. It would be a good idea for any employees with large amounts of money left over on their accounts from years past and are nearing retirement age to take care of this soon so they won’t miss out!

The main reason for enacting this change was because some people were using their health FSA balances as retirement plans, with large amounts of money being left on the table at the end.

The other reason behind this change is many employees were making bad decisions about:

  1. What they should spend their benefits on at the last minute when an illness strikes them
  2. Or if someone needs medical equipment installed in their home

To avoid these costly mistakes, individuals would need to try and budget more accurately prior to each pay period. This way, they will not find themselves in a position where the savings account is empty.

About FSAs

An FSA is a flexible spending account. It’s an employer-sponsored benefit that allows employees to pay for certain out-of-pocket expenses with pretax dollars. FSA lowers the amount they owe in taxes at tax time. Besides reducing (or eliminating) your federal income tax liability, FSAs permit you more control over your yearly medical expenses spending. This additional control ensures that these costs don’t sneak up on you and create an emergency when it comes time to file your annual taxes.

There are two types of contributions: health care and dependent care. Health care accounts can be used only by people who use their own funds (not insurance or other coverage) to pay for qualified medical expenses not covered by another plan, like deductibles, copays, and coinsurance. You can use dependent care accounts only for expenses that allow you to work or look for a job (like daycare costs).

If we’re talking about a company like DaVita Kidney Care Services (a kidney care Centre), they’ll have one of these types of accounts that will be funded entirely through payroll deductions from all current employee salaries. This way, everyone benefits!

Final Words

The IRS has announced a new maximum contribution limit for FSAs in 2020. Employees should use their FSA and HSA accounts simultaneously to take advantage of this opportunity to cover more medical costs. If you’re not already maxing your health savings account contributions for 2019, now is the time to do it!

Official Sources

What is an FSA (Flexible Spending Account?)