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.
Andrew Wynn, co-founder and co-CEO of Ascend, has been at the forefront of empowering insurance companies through cutting-edge, profit-enhancing technology. With over a decade of experience in technology and insurance industries, Andrew has developed a keen insight into the challenges faced by insurance professionals.
Andrew started Sheltr, acquired by Hippo, a homeowner's coverage insurtech. During his time there, he witnessed firsthand the inefficient and outdated payment and accounting workflows that exist within insurance. With this experience, he founded Ascend with his co-founder, Praveen Chekuri.
Jim Daniels has nearly 40 years of experience and leads UHY's Albany tax practice, which includes oversight of all tax engagements. He has an extensive background serving a variety of entities with tax compliance and planning related to corporate, individual, estate, and state and local taxes. He has vast knowledge of federal, state and local tax planning and multistate taxation.
Bryan Eberle is president of tax solutions at Nepsis, a national financial advisor and investment management firm.
He joined the firm prior to its acquisition of the full-service tax, accounting and consulting firm Sevenich, Butler, Gerlach & Brazil and was instrumental in planning for, and played a crucial role in, expanding Nepsis' tax program and merging the two entities.
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.
