IRS releases new relief affecting FSAs

new relief affecting FSAs released by IRS

A release from the IRS provides new relief affecting FSAs, including Medical FSAs and Dependent Care FSAs. There are four main changes provided in the relief, addressed in two notices.

What is the new relief affecting FSAs?

Within Notice 2020-29 from the IRS, taxpayers using FSAs will receive the following relief:

Change #1: Extended claim period

The first change extends the claims period for taxpayers to apply unused amounts remaining in a health FSA or dependent care assistance program for expenses incurred for those same qualified benefits through December 31, 2020.

Change #2: Expanded mid-year elections

The second change expands the ability of taxpayers to make mid-year elections for the following:

  • health coverage
  • health FSAs
  • dependent care assistance programs

The aim is to allow them to respond to changes in needs as a result of the COVID-19 pandemic.

Change #3: Earlier relief for HDHPs

The third change 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.

Change #4: Increased rollover amount

The final, and perhaps largest, change in the new relief affecting FSAs is the updated rollover provision. Since its introduction in 2013, the rollover feature has been set at $500 with no fluctuations.

In a historical move, Notice 2020-33 not only increases the current rollover from $500 to $550 for medical FSAs, but establishes it will now be adjusted annually for inflation.

For more information on the new relief affecting FSAs and how to address them, register for our webinar this Thursday, May 14th at 11am ET: How COBRA and Health Plan Deadlines are Affected During the COVID-19 Pandemic

We are aware these are unprecedented and sudden changes. We are collaborating internally and with our valued partners to determine what measures to take in response to the IRS guidance. Please visit our COVID-19 Resource Center for the latest information on this developing topic.