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.
Michael A. Stachowiak is the chief revenue officer at Enrollify.
Gregory V. Kanarian is an investment strategist at Natixis Investment Managers Solutions representing the firm's direct indexing strategies.
Prior to joining the investment strategies group, Greg was a portfolio consultant at Natixis for 12 years. Previously, he was a portfolio consultant with Deutsche Bank and a financial planning associate with Pillar Financial Advisors. He is a CFA charterholder and is FINRA Series 7 and 66 licensed.
Yakir Golan is the CEO and co-founder of Kovrr. He started his career in the Israeli intelligence forces. Following his military service, he acquired multidisciplinary experience in software and hardware design, development and product management. For the past few years, he has focused on bringing cyber risk management solutions based on advanced machine learning and artificial intelligence to the market. Yakir holds a BSc in Electrical Engineering from the Technion, Israel Institute of Technology and an MBA from IE Business School, Madrid, Spain.
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.
