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.
Noah Gold is the general counsel and head of public policy of Prism Data, a cash flow underwriting infrastructure and analytics platform. Prior to joining Prism, he was the general counsel of Petal, a fintech credit card company. Before that, he was the assistant general counsel of a leading e-commerce software platform, and prior to that Noah previously practiced law at Paul, Weiss, Rifkind, Wharton & Garrison LLP.
Jason Rosen is founder and CEO of Prism Data, a cash flow underwriting infrastructure and analytics platform. Prior to founding Prism, Jason was co-founder and CEO of Petal, a fintech credit card company. Jason served on the Consumer Advisory Board of the Consumer Financial Protection Bureau, sat on the Small Business Regulatory Enforcement Fairness Act panel for the Open Banking rulemaking, and is a member of the OCC's Project REACh. Jason previously practiced law at Sullivan & Cromwell and Gunderson Dettmer, where he represented financial institutions, technology companies and venture capitalists. Jason holds a JD from Harvard Law School.
Dev Nag is the founder and CEO of QueryPal. He was previously on the founding team at GLMX, one of the largest electronic securities trading platforms in the money markets. He was also CTO and founder at Wavefront (acquired by VMware) and a senior engineer at Google, where he helped develop the back end for all financial processing of Google ad revenue. He previously served as the manager of business operations strategy at PayPal. He also launched eBay's private-label credit line in association with GE Financial. Dev received a dual-degree B.S. in mathematics and B.A. in psychology from Stanford.
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.
