Relief Included in Year-End Appropriations Act for Health FSAs and Dependent Care FSAs
The Consolidated Appropriations Act was approved by Congress on December 21, 2020, and signed into law by President Donald Trump on December 27, 2020. Along with COVID-19 response and stimulus provisions, the bill provides the following voluntary temporary relief for health and dependent care flexible spending arrangements (FSAs):
- For Plans with Carryover - Unused Benefits or Contributions – FSA plans (both healthcare and dependent care accounts) may permit unused FSA benefits from a plan year ending in 2020 to be carried over to 2021 and unused amounts from a plan year ending in 2021 to be carried over to 2022.
- For Plans with Grace Periods - Extension of Grace Period - Plans are allowed to permit a 12-month grace period for unused benefits or contributions in health and dependent care FSAs for plan years ending in 2021 or 2022.
- Change in Election Amount - For plan years ending in 2021, plans may allow employees to make an election to modify prospectively the amount of their FSA contribution amount without a change in status.
- Post-Termination Reimbursement from Health FSAs - Health FSAs may allow employees who cease participation in the plan during the 2020 or 2021 calendar year to continue to receive reimbursements from unused benefits or contributions through the end of plan year in which participation ceased (including any grace period).
- Dependent Care FSAs Where Dependent Aged Out During the Pandemic - Dependent care FSAs may extend the maximum age from age 13 to age 14 for eligible dependents who aged out of eligibility during the pandemic. This change applies to any employee who enrolled in a dependent care FSA during an enrollment period ending on or before January 31, 2020, who has an unused balance for that plan year. It allows the employee to claim reimbursement of the unused balance in the following plan year while the child is age 14.
As stated above, these provisions are not mandates but are options for employers to consider. Plan amendments must be made by the end of the first calendar year beginning after the end of the plan year in which the amendment is effective (for example, calendar 2020 plan amendments must be adopted on or before December 31, 2021), provided the plan must be operated consistent with the terms of the amendment beginning on its effective date.
PBA will be working on a plan clarification and provide you the latest version when available. If you would like to opt OUT of this voluntary, temporary relief for your FSA plan, please let us know by January 31, 2021.
Please note that while we want you to be aware of the provisions in the law and have a chance to consider them, the law is quite voluminous and additional IRS guidance may be forthcoming.
If you have any questions, please reach out to your PBA Flex/Enrollment Representative.