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.
Shaye-Ann Hopkins is a behavioral researcher at Duke University, where she works with design tools and interventions that enhance wellbeing. Her work focuses on designing and testing behaviorally informed solutions that support healthier financial behaviors and more resilient communities.
Kahini Shah is a behavioral researcher at Duke University. Her work primarily focuses on leveraging insights from human behavior to design products and systems that promote financial wellbeing. She has worked on projects across the globe to help people build wealth, increase their savings, and reduce their debt.
Michelle Bonat is the chief AI officer at AI Squared, with a history of leadership roles in AI and technology, including AI CTO at JPMorgan Chase and head of AI Innovation at Chase. She led global engineering and product initiatives at Oracle across 30 countries and founded a fintech startup. A patent holder and hands-on data scientist always experimenting with the next new innovation, Michelle also drove product leadership at three companies that were acquired including Ariba (acquired by SAP).
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.
