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.
Olivia Krylov is an associate at Capco, interested in the banking and payments, risk and regulatory, and security and privacy spaces.
She currently works out of Capco's Chicago office and is on a payments engagement assessing the security of the clients payment rails. She has also supported a DEI engagement developing the financial institutions overall strategy, as well as a small team working on financial and regulatory consulting for a financial services firm. She has previous experience in consulting both through internships and in an academic context.
Christopher Senackerib is a senior consultant at Capco.
He has worked as a project manager and business analyst on projects across investment management and capital markets organizations. Prior to joining Capco he worked at a boutique financial services consulting firm, delivering capital markets technology projects, and he previously managed a team providing investor and market intelligence data at a fintech firm.
Emily Dell is a client engagement manager for DUX, a virtual inspection software company. She has a background working for SaaS startups in client-facing positions.
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.
