Employers Have Flexibility for Health FSAs and Dependent Care Assistance Programs

Employers have greater flexibility for employee benefit plans offering health flexible spending arrangements (FSAs) or dependent care assistance programs. Under the Taxpayer Certainty and Disaster Tax Relief Act of 2020, these plans now have additional discretion in 2021 and 2022 to adjust their programs to help employees better meet the unanticipated consequences of the COVID-19 pandemic.

covid-19 reliefThe IRS issued Notice 2021-15, which provides details about the relief for unanticipated changes in the availability of certain medical care and dependent care. Employers with health FSAs and dependent care assistance programs receive:

  • Flexibility for the carryover of unused amounts from the 2020 and 2021 plan years;
  • Flexibility to extend the permissible period for incurring claims for plan years ending in 2020 and 2021;
  • Flexibility to adopt a special rule regarding post-termination reimbursements from health FSAs;
  • Flexibility for a special claims period and carryover rule for dependent care assistance programs when a dependent “ages out” during the COVID-19 public health emergency; and
  • Certain mid-year election changes are allowed for health FSAs and dependent care assistance programs for plan years ending in 2021.

The decision to adjust these employee benefit programs is at the discretion of the employer that sponsors the plan.

The Taxpayer Certainty and Disaster Tax Relief Act of 2020 offers employers the option to amend their FSAs and dependent care assistance programs to provide greater flexibility for employees to elect and use these programs during the pandemic without risking the forfeiture of the amounts they have set aside.

View more information on Coronavirus tax relief for health plans and retirement plans here.

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