The IRS has announced benefits plan limits for 2022. Check them out here.
Here's what you need to know:
- For SIMPLE 401(k) plans, employees can contribute up to $14,000 in 2022
- Employers can allow carryover of unused dependent care FSA funds to plan years ending 2021 and 2022
- Compliance is essential to avoiding penalties from the government
If you’re one of the many employers offering flexible benefits, then it’s important to know just how much you and your employees are allowed to contribute. By the end of each year, the Internal Revenue Service (IRS) announces benefits plan limits for the upcoming year — and the numbers are in for 2022. Strikingly, many increases are in store.
Before we get into the changes, let’s define “flexible benefits.”
What are flexible benefits?
According to Healthcare.gov, a flexible benefits program “offers employees a choice between various benefits including cash, life insurance, health insurance, vacations, retirement plans, and child care.” Other benefits may include flexible spending accounts (FSAs), health savings accounts (HSAs), and adoption assistance.
Also called a “cafeteria plan,” a flexible benefits plan must meet the requirements of Section 125 of the Internal Revenue Code (IRC).
Employers generally make a contribution towards employees’ flexible benefits, and the employee pays their own share via payroll deduction. These contributions are made on a pretax basis, meaning the amounts are not subject to certain withholding taxes. This ultimately decreases the employee’s taxable wages and increases their take-home pay.
Note: This article covers not just 2022 maximums for Section 125 benefits but also health reimbursement arrangements (HRAs) and commuter benefits. HRAs are authorized by Section 105 of the IRC, and commuter benefits by Section 132.
A flexible benefits program “offers employees a choice between various benefits including cash, life insurance, health insurance, vacations, retirement plans, and child care.”
For SIMPLE 401(k) plans, employees can contribute up to $14,000 in 2022, up from $13,500 in 2021. The catch-up contribution limit (for age 50 or older) remains unchanged at $3,000.
Normally, unused dependent care FSA funds cannot be carried over from year to year. Under COVID-19 relief legislation, employers can allow carryover of unused dependent care FSA funds to plan years ending 2021 and 2022.
HSA and high deductible health plan (HDHP) limits
Adoption assistance limit
Benefits software is key
As you can see, there are many changes impacting benefits in 2022 — and compliance is essential to avoiding penalties from the government. Employers must take note of the changes and administer them in the right way. If you’re not using benefits software to manage your benefits processes, now is the time. Check out Zenefits all-in-one platform for seamless benefits administration.