IRS Providing Changes to FSA's Due to COVID-19

6/1/2020 - By Judy Fryer

The new IRS guidance allows changes to flexible spending accounts to provide workers with more financial flexibility.

Where previously the IRS required a Life Event/HIPAA qualifying event to make changes to flexible spending account Annual Elections, they have made the historical decision to allow employers to offer this mid-year opportunity to make changes available to their employees. Employers do not have to offer this option, but there really is not any downside except making the payroll changes associated with the change in the election going forward. Let's look at the opportunities:

Medical FSAs

2020 Maximum $2,750

Some employees may need to temporarily close their FSA accounts to provide additional cash to meet other financial needs, while others may see additional value in adding to their account based on unexpected medical expenses they may have or expect to have this year. Also, with the addition of the over the counter items being added to the eligible expense list, employees might find this as an excellent opportunity to increase their pre-tax dollars.

Employees who may not have made a MEDFSA election for 2020 will now be allowed the option to make an election for 2020.

Dependent Care Assistance FSAs

2020 Maximum - $5,000 (married workers filing jointly)

No one expected their daycare providers to close or change so abruptly this year. The IRS realized this and has already provided for those participating to make changes to their Annual Election. With the recent announcements in Florida that summer youth camps will be open; we might expect other states to do the same. Employees making summer plans for their children can again make changes to their daycare expense accounts by submitting a change of status form to their HR departments who will notify Saltmarsh.

Employers May Extend Grace Periods & Extensions That Ended in 2020

Due to the unprecedented closure of schools, daycares, medical offices, and cancellation of all elective surgeries and procedures, the IRS realized there may be larger amounts of unused medical FSA elections during the grace period.

The IRS is allowing employers to extend the 2 month and 15 day grace period and the filing deadline for employees, to help to alleviate any large forfeitures that otherwise would have been used if the facility would have been available. Also, for employers that allow the Roll Over, you can extend the time to incur expenses as well.

Additional Benefit Options Allowed

Employers will want to consult with their insurance broker about these options. Under the new guidance, companies that offer employees coverage through a Section 125 Cafeteria Plan may allow their employees to:

Enroll in an employer-sponsored plan during the pandemic if they had previously declined coverage
Revoke an existing plan election and enroll in a different coverage provided by the employer
Revoke enrollment in all company-sponsored plans, but they must provide in writing that they are enrolling in another plan

For more information, please refer to the IRS Notice 2020-29.

QUESTIONS?

If you have specific questions, please reach out to a member of our Flexible Spending Plan Administration team. We are available to assist you in any of these changes and options. We can provide you with an amendment to your existing plans that allow the changes you want to offer to your employees. We can also provide you with status change forms or midyear paper election forms. We will always accept a change or mid-year enrollment spreadsheet.

Visit our COVID-19 RESOURCE HUB for ongoing updates and information. Due to the ever-changing nature of this event, you should always consult a professional.