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 Schor is a partner in Deloitte & Touche LLP's audit and assurance practice, where he focuses on advising our domestic and international clients on matters of internal controls, including information technology, regulatory matters, risk management issues, and control and compliance management processes. He leads Deloitte's internal audit practice, with more than 20 years of experience advising Deloitte's largest clients on the various elements of the internal audit lifecycle, including risk assessments, audit planning and execution, and reporting to audit committees and key executive stakeholders.
Ryan Hittner is an audit and assurance principal at Deloitte with more than 15 years of management consulting experience, specializing in strategic advisory to global financial institutions focusing on banking and capital markets. He co-leads Deloitte's artificial intelligence and algorithmic practice which is dedicated to advising clients in developing and deploying responsible AI including risk frameworks, governance, and controls related to artificial intelligence and advanced algorithms. He also serves as deputy leader of Deloitte's valuation and analytics practice where he leads Deloitte's Omnia DNAV Derivatives technologies, which incorporate automation, machine learning, and large datasets.
Simon Williams is vice president of the accountant segment at Intuit.
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.
