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.
Steve Powell is a veteran executive in specialty and complex claims. His leadership spans global operations, forensic engineering, fire investigation, environmental and construction consulting, managed repair, catastrophe response, and property and casualty claims. He is a claims executive, and author of The Lighthouse Keeper, and is known for transforming claims operations into strategic assets, he advises insurers, TPAs, and global risk stakeholders on severity management, global claims strategy, and the future of the built environment.
Tara Popernik, CFA, CFP, is EVP and head of wealth planning at LPL Financial. Most recently, she served as senior vice president of the wealth strategies team at Bernstein Private Wealth, where she spent 21 years in various leadership roles.
Jay joined Sentinel Group as part of the ERISA Consulting team. Jay brings more than 20 years of legal experience and seven years direct retirement industry experience to Sentinel after providing legal, regulatory and compliance services to clients over the course of his career. He spent 10 years as in-house counsel to the Commonwealth of Massachusetts under the Transportation Secretariat.
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.
