May 31, 2020 11:19 pm

FSA Rules Liberalized for 2020

If you have a medical FSA or a dependent care FSA for 2020, the IRS has provided some relief that may be helpful to you (Notice 2020-29 and Notice 2020-33). This relief is in response to the unexpected expenses that many employees are experiencing because of COVID-19. This relief applies to cafeteria plans, which include medical FSAs and dependent care FSAs.

  • Employees can make mid-year elections for their FSAs on a prospective basis. For example, employees can increase their salary reduction contributions for the balance of the year, provided the plan allows it. This option is not restricted to employees impacted by COVID-19.
  • The  limit on unused medical FSA contributions that can be carried forward by employees from 2020 to 2021 is increased to $550 (up from $500). This reflects indexing of the prior $500 limit for inflation, based on 20% of the annual contribution limit (20% of $2,750 contribution limit for 2020). The carryover applies only if the plan permits it (a plan cannot permit a carryover if it allows a grace period of up to 2½ months following the end of a plan year). A plan that wants to adopt the increased carryover limit can do so by amending the plan by the last day of the plan year beginning in 2021 (e.g., December 31, 2021, for a calendar year plan).
  • Employers have discretion to extend the claims period for medical or dependent care FSAs through December 31, 2020. An extension would allow employees who had unused amounts in a medical or dependent care FSA when a grace period ended earlier in the year (such as March 15 for a calendar year plan) to use them to pay or reimburse expenses incurred through December 31, 2020.
  • Coverage for telehealth services under a high deductible health plan is retroactive to January 1, 2020.
Tax Glossary

Tax home

The area of your principal place of business or employment. You must be away from your tax home on a business trip to deduct travel expenses.

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