January 2021

Following up on our alert containing the highlights from the Consolidated Appropriations Act, we wanted to reach out again regarding the specific Flexible Spending Accounts (FSA) and Dependent Care Accounts (DCA) provisions contained within the bill.

If you choose, you may adopt the following changes to your 2020 and 2021 FSA and/or DCA, which will impact employees’ ability to use funds in 2021. Specifically you may adopt/allow the following:

  • If your plan already has a grace period, you may extend the grace period up to 12 months (meaning employees would be able to incur claims for all of 2021, against funds remaining at the end of the 2020 plan year).
  • If your plan has a carryover feature: You may choose to allow employees to carry over all unused amounts remaining in their FSA at the end of the 2020 plan year into 2021 (the $550 limit would not apply) AND from 2021 into 2022
  • Note you may choose the extended grace period only if you have a current grace period, and the carryover only if your plan has a carryover feature. These are mutually exclusive plan designs and cannot both be present in the same plan
  • Additionally, you may choose to allow employees to make prospective mid-year FSA and/or DCA election changes, without a qualifying event

Employer Action:  If you choose to adopt any of the above changes, your FSA plan document will need to be updated immediately, and the vendor will need to update the plan set up in their system.

IRS Circular 230 disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any tax advice contained in this communication, unless expressly stated otherwise, was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any tax-related matter(s) addressed herein.

Heffernan Employee Benefits’ Health Care Reform, ERISA, and HR Alerts are published as an information source for our clients and colleagues. It is general in it’s nature and is not intended to be and should not be used as a substitute for specific legal advice.