UPDATED 5/12/2020: New information from IRS available on Medical FSAs and COVID-19
There are many questions employees have on how their Medical FSAs are impacted by COVID-19. Specifically, they want to know what options they have and what changes might be on the horizon.
Here are the facts we know so far.
Medical FSAs and COVID-19
No legislative updates. First of all, there have been no legislative updates regarding the treatment of Medical FSAs in light of the COVID-19 pandemic.
While guidance has been issued for other accounts, including Dependent Care FSAs, Health Savings Accounts, and commuter benefits, the IRS has not released anything about Medical FSAs. Given that 68% of employers offered FSAs last year, this is somewhat surprising.
No changes to elections. While some employers have had closures and have reduced the amount of pay periods to deduct contributions, participants enrolled in a Medical FSA are not able to change or drop elections.
No transferring funds. Some people are facing a dilemma where they have money sitting in their Medical FSA but their other pre-tax accounts are running low on funds. One common question is “Can I transfer funds from my Medical FSA into my other account?”
Historically, the IRS has not allowed employees to transfer money between two different pre-tax accounts. While a temporary provision allowing this would be beneficial, there has been no indication that this rule has changed.
What to expect next
According to the Employers Council On Flexible Compensation, an organization that follows and reports on pre-tax legislation, a few things are in the works. However, none of the upcoming changes will affect Medical FSAs.
The next round of legislation is set to focus on additional assistance for small businesses.
For more information, we encourage you to visit the employee section of our COVID-19 Resource page.