To assist with the nation’s response to the Coronavirus outbreak, the IRS has issued a number of extensions and relief offerings to employee benefit programs such as Health FSAs, Dependent Care Accounts, etc. On May 13th the IRS issued Notice 2020-29 which provides for increased flexibility with respect to mid-year election changes during calendar year 2020 related to Health Flexible Spending Arrangements (“FSAs”) and Dependent Care Assistance Programs (“DCAs”). This notice also provides increased flexibility with respect to grace periods to apply unused amounts in health FSAs and Dependent Care Assistance Programs incurred through December 31, 2020. In addition, the IRS also released Notice 2020-33 which increased the $500 carryover amount for health FSAs.
In the below subsections, we’ve highlighted some of the relief offerings and the impact it may have on your benefit account(s). Should you have any questions, please feel free to contact OCA at 855-622-0777.
Relief for Mid-Year FSA/DCA Election Changes
Effective for calendar year 2020 only, an employer, at their discretion, may now permit employees who are eligible to make salary reduction contributions under a Health FSA and/or Dependent Care Assistance Program to do one of the following for any reason on a prospective basis:
- Revoke an election
- Make a new election
- Decrease or increase an existing election
Employers may limit decrease/revoke to the reimbursement already provided (i.e. if elected 2500 and have received 2000, you may limit decrease to 2000 so that salary reductions will cover the reimbursement). It is also important to note that election changes may not be retroactive (i.e. no refunds). Therefore, DCA elections already contributed for future daycare expenses (i.e. summer camps) may not be returned to the plan participant.
Qualified Election Changes for FSA and DCA
Regardless of the IRS extensions, the below tables illustrate different event types that would allow an FSA and/or DCA participant to make a change to the benefit.
Extended Grace Period
This notice also provides flexibility for employers, at their discretion, to provide an extended period of time to incur unused amounts remaining in an FSA or DCA account. The extension of time for incurring claims is available for plans that have a grace period and for plans that provide for a carryover (Health FSAs can either adopt a grace period or provide for a carryover amount but cannot have both).
- Grace period ending in 2020 may be extended through December 31, 2020.
- A plan without a grace period that ends in 2020 (i.e. a fiscal year plan) may extend the plan year through December 31, 2020.
- An employer that adopts this rule will make an employee ineligible for an HSA through at least December 31, 2020.
Note: Certain plans would not need the relief provided in this notice. For example, a plan with a plan year ending on or after October 31, 2020, continues to be able to provide a grace period of up to two months and 15 days, which would allow the reimbursement of claims incurred after December 31, 2020.
Health FSA Carryover (Notice 2020-33)
Under prior guidance, a health FSA could provide that unused amounts at the end of the year could be carried over to the following plan year. The limit on the carryover amount was $500. Last year, President Trump signed an executive order that directed the Treasury Department and IRS to issue guidance that would increase the amount that could be carried over in a health. This notice provides that the $500 carryover amount is to be indexed for inflation, meaning that the carryover amount in 2020 will be $550. A plan amendment to effectuate this change must be adopted by December 31, 2021 and can be retroactive to the 2020 plan year.
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