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.
Eric Boughner is the chairman of BNY Pennsylvania and regional president of BNY Wealth.
He oversees all client, employee and community activities in Pennsylvania and leads BNY Wealth across the Midwest. He has worked across the financial service industry and joined BNY in 2008 as a portfolio manager in the in the private equity group.
Lewis Rinaudo Cohen is the co-chair of the digital assets and emerging technology practice group at Cahill Gordon & Reindel LLP, known as CahillNXT, which focuses on the use of blockchain, crypto assets and tokenization across all aspects of capital markets and all areas of economic activity. Lewis is a frequent public speaker on the topic of blockchain and the financial markets, and has been included for many years as a "Band 1" practitioner by leading independent firm Chambers and Partners USA.
Jason Rozovsky is head of legal at Interop Labs, the initial developer of the Axelar network, the Web3 interoperability platform. Jason has worked in the blockchain space for nearly a decade, having previously been global legal lead for blockchain at Accenture and assistant general counsel at R3, an enterprise blockchain company.
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.
