Due to the continuing COVID-19 Pandemic, Congress had allowed for special rules regarding health FSAs (Flexible Spending Arrangements) under Section 125 Cafeteria Plans. They have also extended these to dependent care assistance programs. These new rules fall under the Consolidated Appropriations Act and were put in place starting in December 2020.
In order to help employees be able to be better prepared for unplanned emergencies in public health, the IRS has provided these plans with better discretion by giving the ability to make adjustments in 2021 and 2022. According to the IRS, it is likely that people will have unused health FSA money or dependent care assistance program money at the end of the year due to the pandemic.
Because of the changes to the Consolidated Appropriations Act there will be more flexibility to carry over unused amounts from plans for the years 2020 and 2021 through a grace period for plans ending in those years.
There are a few special rules regarding this such as:
- post-termination reimbursements;
- dependent care assistance programs when their dependent aged out during the pandemic;
- certain mid-year election changes; and
- dependent care assistance program plans that end in 2021.
Notice 2021-15 allows for eligible employees that originally declined employer-sponsored health coverage to make a new election; change their existing election and enroll in different health coverage by the same employer, revoke an existing healthcare election as long as they put in writing they are already enrolled in, or will immediately enroll in other healthcare coverage not offered by their employer.
This same notice also gives needed relief for amendments to Section 125 cafeteria plans to put in place other expansions under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). These allow for FSAs and health reimbursement arrangements to include over-the-counter- medications that do not require prescriptions, as well as menstrual care products. This new rule about expense reimbursement is for any period starting January 1,2020 without disqualifying your plans.
If you have questions, be sure to talk to your financial advisor to determine how to best utilize these benefits.
