IRS offers more flexibility on cafeteria plans, FSAs, dependent care assistance in response to coronavirus

The IRS issued regulations on Tuesday, 5/12/2020 that could impact your health insurance plan, health flexible spending accounts (FSA’s), and dependent care assistance. There are two broad changes that you may hear more about in the coming weeks:

  1. The IRS is giving employers the option to allow for mid-year changes to health insurance plans, health FSA’s and dependent care plans
  2. The IRS is giving employers the option to extend the time available to apply unused FSA dollars, as well as increase the amount that can be carried into future years.

What do I need to know if my business offers employees the option to enroll in Sec. 125 cafeteria plans (such as employer-sponsored health coverage)?

We recommend that you speak with your benefits provider to more fully understand how IRS Notice 2020-29 and IRS Notice 2020-33 interact with the health and flex plans that you offer to your employees.

What do I need to know if I am an employee that participates in employer sponsored health insurance and/or flex spending plans?

  • Consider asking your employer if they are aware of IRS Notice 2020-29 and IRS Notice 2020-33, which provides COVID-19 relief to Section 125 cafeteria plans.
  • Watch for notices from your employer letting you know about mid-year enrollment options to your health and flex spending plans.
  • If your employer chooses to offer a mid-year change to enrollments:
    • Evaluate if you are in the right health insurance plan. For example, if you declined coverage during the regular open enrollment period, you may have the option to sign-up now.
    • Consider if you should enroll in or modify contributions to a medical FSA or dependent care assistance plan.
      • For example, it’s only May, and you’ve spent 90% of the money in your health FSA. If your employer chooses to offer a mid-year enrollment, you may have an opportunity to increase your contribution to the health FSA program.
      • Maybe you forgot to enroll in the dependent care assistance program during the regular open enrollment period. If your employer offers a mid-year enrollment period, you could choose to sign up now and still receive the tax benefit of paying for childcare with pre-tax dollars.
      • Some families may find that they have lower childcare costs due to the COVID-19 pandemic. If your employer offers a mid-year enrollment period, you can choose to decrease contributions to the dependent care assistance program.

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