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.
Carlos Marmolejo is CEO of Finsus.
Mark McDonald is president of Visual Lease and CoStar Real Estate Manager (formerly Virtual Premise), a wholly-owned subsidiary of CoStar Group. McDonald joined Virtual Premise as a member of the professional services team during the company's start-up phase. He also served as the leader of the field sales team during a multi-year period of hyper-growth, worked to establish implementation partnerships with the Big Four, and has guided numerous Fortune 500 companies through the digital transformation of their real estate portfolios and lease accounting compliance. He currently leads CoStar Real Estate Manager's overall strategy development and operations.
Csaba Farkas joined TMF Group in March 2021 as the head of accounting and tax consultancy services. He is an ACCA-qualified professional with several years of experience at professional services organizations in Budapest and London. He has a strong technical accounting background and, having worked as an interim financial controller in multiple engagements, has significant experience in implementing new enterprise resource planning systems in finance functions and in optimizing finance processes.
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.
