The Internal Revenue Service today released guidance to allow temporary changes to section 125 cafeteria plans. These changes extend the claims period for healthcare flexible spending arrangements (FSAs) and dependent care assistance programs and allow taxpayers to make mid-year changes.The guidance issued today addresses unanticipated changes in expenses because of the 2019 Novel Coronavirus (COVID-19) pandemic and provides that previously provided temporary relief for high deductible health plans may be applied retroactively to January 1, 2020, and it also increases for inflation the $500 permitted carryover amount for health FSAs to $550.
Notice 2020-29 (PDF) provides greater flexibility for taxpayers by:
Notice 2020-33 (PDF) responds to Executive Order 13877, which directs the Secretary of the Treasury 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 increases the limit for unused healthcare FSA carryover amounts from $500, to a maximum of $550, as adjusted annually for inflation.
Note: The Healthcare FSA per employee maximum for 2020 is $2,750. And, this guidance would permit a plan to increase their rollover amount up to $550. The deadline to implement this increase, by written plan amendment is the last day of the plan year.
A plan may adopt these optional changes via a simple Summary of Material Modifications (SMM) which can be mailed (or e-mailed if the population meets the criteria for electronic distribution).
Please contact your Account Manager and/or Sales Executive for details about modifying your plans to take advantage of these changes.
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