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.
Rahul Sharma is a senior project manager with US Bank, specializing in open banking APIs and embedded payments technology. With over a decade of experience in the financial technology sector, he has pioneered the development and scaling of API-based payment solutions across multiple payment networks including RTP, FedNow, ACH and Push to Card systems.
Srikanth Narayan is CEO of Cache Financials (Cache), founded in 2022 along with its subsidiary investment advisor Cache Advisors.
Previously, he served in engineering and product leadership positions at Uber and Alphabet. Self-taught in finance and economics, Narayan combines his technical expertise with financial acumen at Cache, which gives investors with large stock positions access to advanced products, tools and insights. He received a bachelor's degree in computer science from the RV College of Engineering, India and a master's degree in human-computer interaction from the University of California, Berkeley.
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.
