May 13, 2020
New IRS guidance makes temporary changes to section 125 cafeteria plans to provide tax relief and flexibility amid the COVID-19 pandemic. The IRS is extending the claims period for health flexible spending arrangements (FSAs) and dependent care assistance programs and is allowing taxpayers to make mid-year changes.
The IRS is allowing its previously provided temporary relief for high deductible health plans to be applied retroactively to January 1, 2020. The guidance also increases for inflation the $500 permitted carryover amount for health FSAs to $550.
Notice 2020-29 provides more flexibility for taxpayers in the following ways:
- Extends claims periods for taxpayers to apply unused amounts remaining in a health FSA or dependent care assistance program for expenses incurred for the same qualified benefits through December 31, 2020
- Expands taxpayers’ ability to make mid-year elections for health coverage, health FSAs, and dependent care assistance programs
- Applies earlier relief for high deductible health plans to cover expenses related to COVID-19 and a temporary exemption for telehealth services retroactively to January 1, 2020
The IRS also issued Notice 2020-33 in response to the Administration’s Executive Order 13877, which directs the Treasury secretary to issue guidance to increase the amount of funds that can carry over without penalty at the end of the year for flexible spending arrangements. The notice increases the limit for unused health FSA carryover amounts from $500, to a maximum of $550, adjusted each year for inflation.
