IRS Expands Election and Reimbursement Periods for Health Benefits, FSAs

The agency has also announced an increase in the FSA carryover amount.

The IRS released guidance to allow temporary changes to Section 125 cafeteria plans, extending the claims period for health flexible spending accounts (FSAs) and dependent care assistance programs and allowing employees to make mid-year changes.

The IRS explains that the guidance addresses unanticipated changes in expenses because of the COVID-19 pandemic.

Specifically, Notice 2020-29 permits employees to apply unused amounts in FSAs to pay or reimburse medical expenses or dependent care expenses, respectively, incurred through December 31. In addition, with respect to employer-sponsored health coverage, the notice permits eligible employees to make a new election on a prospective basis, if they initially declined coverage, or to change an election. The notice also extends earlier relief for high deductible health plans (HDHPs) to cover expenses related to COVID-19 and a temporary exemption for telehealth services retroactively to January 1.

In Notice 2020-33, the IRS announces a new limit on unused amounts remaining as of the end of a plan year in a health FSA that may be carried over to pay or reimburse an employee for medical expenses incurred during the following plan year. The maximum unused amount from a plan year starting in 2020 allowed to be carried over to the immediately following plan year beginning in 2021 is $550. The current limit is $500.