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.
Ed McFadden is the senior vice president for communications at the American Financial Services Association.
Kara Clark, FSA, is a Senior Research Actuary at the Society of Actuaries Research Institute, focusing on mortality and longevity and their implications for the life insurance industry.
She brings over three decades of actuarial and leadership experience across consulting, industry, and professional organizations. Most recently, she was a Partner at Oliver Wyman, advising on risk modeling, value-based care, and health strategy, informing her perspective on healthcare drivers of mortality.
Her work emphasizes practical, research-based insights for actuaries and industry leaders. She holds an MBA from Northwestern University and a BA in Economics from the University of Illinois Urbana-Champaign.
Maik Taro Wehmeyer is the co-founder and CEO of Taktile, the leading AI decision platform built to empower financial institutions to make faster, more accurate decisions in risk management.
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.
