Health and Welfare

2020 Cost-of-Living Adjustments for Flexible Spending Arrangements and Fringe Benefits

The IRS has issued Revenue Procedure 2019- 44, which contains cost-of-living-adjusted (COLA) amounts for 2020 for flexible spending arrangements (FSAs) and certain other fringe benefits, as described below.

 

Cafeteria Plans

For taxable years beginning in 2020, the dollar limitation under Internal Revenue Code Section (IRC Sec.) 125(i) on voluntary employee salary reductions for contributions to health FSAs is $2,750.

 

Qualified Transportation Fringe Benefits

For taxable years beginning in 2020, the monthly limitation under IRC Sec. 132(f)(2)(A) regarding the aggregate fringe benefit exclusion for transportation in a commuter highway vehicle and any transit pass is $270. The monthly limitation under IRC Sec. 132(f)(2)(B) regarding the fringe benefit exclusion amount for qualified parking is $270.

 

Adoption Assistance Programs

For taxable years beginning in 2020, under IRC Sec. 137(a)(2), the amount that can be excluded from an employee’s gross income for the adoption of a child with special needs is $14,300. For taxable years beginning in 2020, the maximum amount that can be excluded from an employee’s gross income under IRC Sec. 137(b)(1) for the amounts paid or expenses incurred by an employer for qualified adoption expenses furnished pursuant to an adoption assistance program for other adoptions by the employee is $14,300. The amount excludable from an employee’s gross income begins to phase out under IRC Sec. 137(b)(2)(A) for taxpayers with modified adjusted gross income in excess of $214,520 and is completely phased out for taxpayers with modified adjusted gross income of $254,520 or more. (Section 3.04 of Revenue Procedure 2019-44 contains additional information on the adoption credit.)

 

Qualified Small Employer Health Reimbursement Arrangements

For taxable years beginning in 2020, in order to be considered a qualified small employer health reimbursement arrangement under IRC Sec. 9831(d), the arrangement must provide that the total amount of payments and reimbursements for any year cannot exceed $5,250 ($10,600 for family coverage).