updated on January 4, 2021
Update: Appropriation Act extends FSA relief
The Consolidated Appropriations Act that President Trump signed in late 2020 allows employers who sponsor flexible spending accounts (FSAs) for health or dependents to allow participants to carry over any unused amounts in those accounts from 2020 to 2021 and from 2021 to 2022.
Employers can also allow employees to prospectively change their FSA contribution rates for health or dependents during 2021 without undergoing an authorized election change event.
Employers who wish to offer optional FSA relief provisions must modify their cafeteria plan under Section 125 to accommodate the changes. The modification can be retroactive if it is adopted at the latest on the last day of the calendar year following the year during which the modification comes into force.
To see the
updated on May 12, 2020
Update: IRS Allows Mid-Year Registration and Election Changes for Health Plans and FSAs
On May 12, the IRS issued two notices authorizing temporary changes affecting employees’ ability to enroll and change pre-tax contributions for employer-sponsored health plans, flexible health spending accounts ( FSA health) and flexible expense accounts for dependents (dependent care FSA).
Health insurance registrations and elections
In IRS Notice 2020-29, the agency said it would allow more flexibility regarding mid-year election changes for group health plans and ASPs. For example, employees will now be able to:
FSA registrations and elections
For health FSAs and dependents’ FSAs, used to fund care expenses with pre-tax dollars, employees will be able to enroll in the FSA, drop FSA coverage and increase (within the annual limit) or decrease contributions Existing FSAs deferred during 2020.
Rules of use or loss of the FSA
For plan years ending before December 31, 2020, employers can modify an FSA health or dependent care plan to allow members to âspendâ until the end of 2020 all amounts. remaining that would otherwise be lost.
Increased carryover limit
IRS Notice 2020-33, also released on May 12, increases the amount of funds that plans can carry forward without penalty to year-end for health ASPs, for plans that use the option of postponement.
The notice brings the amount of the deferral for 2020 to $ 550, from $ 500.
The original article appears below:
The COVID-19 pandemic has changed not only the lives of employees, but also the expectations they had in early 2020 for annual spending through their employee benefit programs. Those who wish to change their pre-tax deferred payroll contributions for things like dependent care or elective surgeries will find that some plans can be changed throughout the year, while others cannot be changed. amended only when employees have had a recent âqualifying life eventâ. “
Different plans, different rules
Some changes to optional mid-year contributions have long been permitted. For example, changes in contributions to 401 (k) or similar defined contribution pension plans, and health savings accounts (HSAs), can be made at any time for any reason. Employers can, however, limit changes to once a month for administrative purposes, according to Benefit Resource Inc. (BRI), an administrator of tax-free benefit programs.
The reverse is true for employer sponsored group health, dental and vision insurance plans. Under Section 125 of the Tax Code, optional contributions can only be changed within 30 days of a qualifying event as determined by the IRS, such as marriage, divorce, job change , the birth or adoption of a child, or when a dependent child reaches the age of 26.
[SHRM members-only HR Q&As:
When can employees make midyear election changes to their group health insurance?]
While the rules for health, retirement, and other basic benefits are widely known, employee confusion is more common when it comes to voluntary or additional benefits.
As with group health plans, employees can only make changes to a Flexible Health Spending Account (Health ASP) if they have had a qualifying event.
This poses health concerns for FSA participants because “the COVID-19 pandemic has changed the practice of medicine, with people less willing to go to the doctor and non-elective procedures being canceled or postponed,” he said. said William Sweetnam, legislative and technical director of the Employers Council on Flexible Compensation (ECFC), which represents sponsors of account-based benefit plans. “Employees made pay cut choices in 2019 for their flexible spending arrangements anticipating that these funds would be used to pay for medical bills in 2020, and now they are finding that it will be difficult or impossible to use those funds. for medical services in 2020. “
On April 16, the Society for Human Resource Management (SHRM) asked the IRS to consider the pandemic a qualifying life event that would allow plan members to adjust mid-year the pre-tax amount they put in their health care FSA.
“Many employers are grappling with employee demands for election changes and whether such a change would be authorized under the direction of the IRS,” wrote Emily Dickens, SHRM general secretary, chief of staff and chief of staff. government affairs.
SHRM has also asked the IRS to increase the annual deferral limit to $ 500 for health care FSAs, for plans that use the deferral option. Employees shouldn’t be penalized because their anticipated annual medical expense estimates need to be adjusted, Dickens noted.
Sweetnam would also like to see guidelines temporarily allowing employees to change their health-related FSA pay cut elections. Lawyers for the IRS and Treasury “understand the issues, and they are looking at this and other issues related to health care and the economic impact of the pandemic; however, it’s hard to say what agencies can do, “he noted. .
For 2020, employees can contribute $ 2,750 to a health FSA, including a limited-use FSA limited to dental and vision care services, which can be used in tandem with an HSA.
FSA dependent care
Due to the pandemic, “some employees have young children at home due to daycare closures and other reasons related to COVID-19,” noted Stephen Daley, lawyer at Bond, Schoeneck & King in Syracuse, NY âOther employees may be working fewer hours and, as a result, have lower than expected dependent care expenses. Employees in these circumstances often ask to change the amount of their pre-tax contributions to their flexible dependent expense accounts.
Fortunately, he added, “mid-year electoral rules are applied more liberally” to dependents’ ASPs than health care ASPs.
For dependents’ ASPs, âthe rules allow for changes in pre-tax contributions in circumstances where the need for dependents changes mid-year. allowed to change (stop or reduce) their pre-tax contribution choice, âDaley noted.
If employees subsequently return to their regular on-site work schedule, “another change of election may be authorized to increase contributions, assuming the need for dependents increases.”
The maximum for FSA dependents, which is set by law and not adjusted annually for inflation, is $ 5,000 per year for individuals or married couples filing jointly, or $ 2,500 for one. married person filing separately, subject to earned income limits.
Employee benefit plans for commuters
Employees use commuter benefit plans to pay for transit or parking costs, funded monthly by employees and / or employers with pre-tax dollars. Changes can be made at any time for these plans, as employees do not need to wait for enrollment to open to define a new choice. However, there may be monthly limits for the changes to be applied for a given month.
âDuring this time, when cash flow can be tight and travel needs are low, employees can adjust the money in commuter accounts to zero,â according to BIS. “When commuting starts again, employees are advised to put money in their commuter account two weeks before they need the money.”
For 2020, the monthly limit is $ 270 on pre-tax contributions (employee plus employer) for qualifying transportation benefits, although employers can set a lower limit for their plans.
Articles related to SHRM:
The appropriation law allows mid-year FSA elections, unlimited carry-over amounts until 2021, SHRM online, January 2021
IRS allows mid-year registration and election changes for health plans and FSAs,
SHRM online, May 2020
Table of limits and thresholds for employee benefit plans 2020, SHRM online, November 2019
The 2020 FSA contribution limit increases to $ 2,750,
SHRM online, November 2019
The 401 (k) contribution limit increases to $ 19,500 in 2020,
SHRM online, November 2019
HSA 2020 limits increase modestly, IRS says,
SHRM online, May 2019
Benefits are an investment in employees,
SHRM online, October 2019