The Internal Revenue Service issued guidance Tuesday to make temporary changes to section 125 cafeteria plans, with the goal of providing tax relief and flexibility in the midst of the novel coronavirus pandemic. The IRS is extending the claims period for health care flexible spending arrangements and dependent care assistance programs and enabling taxpayers to make mid-year changes to their accounts.
The guidance released Tuesday by the IRS deals with the unanticipated changes in expenses faced by many taxpayers as a result of the COVID-19 pandemic. The IRS is now allowing its previously provided temporary relief for high deductible health plans to be applied retroactively to Jan. 1, 2020, and also increases for inflation the $500 permitted carryover amount for health FSAs to $550.
Jay Titus is an established thought leader in corporate education strategy and workforce development. He is a trusted advisor to C-Suite level decision makers at Fortune 1000 organizations looking to transform their workforce and retain top talent through creative education benefit solutions. Jay has been featured in Forbes, HR Exec Online, Yahoo Education, and numerous other print and online mediums discussing topics around upskilling, reskilling, and strategic talent management.
Smadar Rinat, CPA, CFE, is a principal in the international and audit and accounting departments of Prager Metis CPAs, a member of Prager Metis International Group. She has over 25 years of experience in the accounting industry. She specializes in providing audit, review, compilation, and accounting services to clients in a wide range of industries, including media and entertainment, technology, not-for-profit, professional services, manufacturing and distribution, and real estate. She is also the leader of the firm's Israel group. In this role, she offers financial and business strategy consultancy to Israeli companies working in or looking to develop operations in the U.S., as well as domestic companies interested in expanding their businesses into Israel.
Mark S. Bonta is the Executive Director of the Recovery Jobs Foundation, an initiative focused on reintegrating individuals in recovery into the workforce. With 20 years of experience as a Plant Director and 6 years of experience as a recovery-friendly employer, he pioneered the New Hampshire Recovery Friendly Workplace Initiative (NH-RFWI) as one of the first RFW's in the nation. Mark's leadership has been recognized with several awards, including the 2022 Littleton Area Chamber of Commerce Citizen of the Year Award and the 2023 White Mountains Community College President's Community Partner Award. Currently formalizing the Recovery Jobs Foundation, he also serves on the NH-RFWI Advisory Council, and as Secretary of the Florida Recovery-Friendly Workplace Coalition.
In Notice 2020-29, the IRS is offering extra flexibility to taxpayers by:
- extending the claims periods 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 Dec. 31, 2020;
- expanding the ability of taxpayers to make mid-year elections for health coverage, health FSAs and dependent care assistance programs, allowing them to respond to changes in needs as a result of the COVID-19 pandemic; and
- applying earlier relief for high-deductible health plans to cover expenses related to COVID-19, and a temporary exemption for telehealth services retroactively to Jan. 1, 2020.
In conjunction with that notice, the IRS also issued Notice 2020-33, in response to the Trump 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 ups the limit for unused health FSA carryover amounts from $500, to a maximum of $550, adjusted each year for inflation.
