The updates continue to roll out from IRS. Most recently, the Service provided the 2022 dollar amounts for many common fringe benefits employers offer.
Your team will need the latest information to avoid surprises about what must be included in employees’ gross income next year.
Here’s a quick look at IRS Revenue Procedure 2021-45 to find out what’s changing:
Cafeteria plans offering QTFB
For qualified transportation fringe benefits (QTFB) made available under a Sec. 125 plan, you’ll see a slight increase.
The 2022 monthly exclusion amount will inch up to $280 (from $270) for qualified parking.
Likewise, the limit on the aggregate amount for transportation in a commuter highway vehicle and any transit pass will increase to $280 (from $270) next year.
Adoption assistance under Sec. 125 plans
If your company offers an adoption assistance program through a cafeteria plan, the max amount you can exclude from gross income will be $14,890. This year, it’s $14,440. Note: This fringe benefit is exempt for income tax purposes only.
The excludable amount begins to phase out if the employee’s modified adjusted gross income exceeds $223,410 (currently $216,660). Furthermore, the amount is completely phased out at $263,410 (currently $256,660).
The FSA changes keep coming
The salary reduction limit for health flexible spending arrangements (FSAs) will be increasing to $2,850. Currently, the limit for this fringe benefit is $2,750.
In general, a Sec. 125 cafeteria plan may give employees a grace period of up to two months and 15 days immediately following the end of the year. The purpose of the grace period? Employees can use contributions left over in their health FSAs.
Meanwhile, the Consolidated Appropriations Act, 2021, allowed employers to extend the grace period due to COVID-19. Under that law, employees can be given a grace period of 12 months from the end of 2020 (heading into 2021) and 2021 (heading into 2022).
Instead of a grace period, your plan may generally allow health FSA carryovers based on the IRS limit. For 2022, it’ll be $570 (it’s $550 now).
Here again, you have more leeway due to COVID-19. That is, you can amend your plan to allow the carryover of all unused funds at the end of 2020 and 2021.