IRS Increases Flexibility for FSAs and DCAs

On May 12, 2020, the IRS issued guidance affecting employee elections under Code Section 125 cafeteria plans, with the goal of providing tax relief and flexibility in the midst of the novel coronavirus pandemic.

The two notices, IRS Notice 2020-29 and IRS Notice 2020-33 allow, but do not require, employers to make the following changes to their cafeteria plans:

  • Permit mid-year election changes for employer-sponsored health coverage, health FSAs and dependent care accounts.
  • Extend claims period for health and dependent care accounts until December 31, 2020 for plans or grace periods ending on or after January 1, 2020.
  • Allow Health FSA carryovers of up to $550 for 2020 funds rolling into 2021 (20% increase of current $500 limit).

Employers should determine which of the permissible changes, if any, they want to adopt and should amend their plan accordingly. Employees eligible to participate in the plan should be notified of any adopted changes to the plan.

The IRS guidance also clarifies that HDHPs that cover the treatment of COVID-19, telehealth or other remote care services between January 1, 2020 and December 31, 2021 not subject to the deductible still qualify as HSA-eligible plans.

As always, please do not hesitate to reach out with any questions or concerns.