On May 12, 2020, the IRS released guidance to allow for relief from COVID-19 for Section 125 Cafeteria Plans, by offering temporary changes to Cafeteria Plans, which extend the claims period for Health Flexible Spending Arrangements (FSAs) and dependent care assistance programs and allow taxpayers to make mid-year changes.
The guidance issued 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 (HDHPs) may be applied retroactively to January 1, 2020, and also increases for inflation the $500 permitted carryover amount for a health FSA to $550.
Two new notices were released; Notice 2020-29 and Notice 2020-33.
IRS Notice 2020-29 provides greater flexibility for taxpayers by:
- Extending 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 December 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.
- Applying earlier relief for high deductible health plans to cover expenses related to COVID-19, and a temporary exemption for telehealth services retroactively to January 1, 2020. This is in response to the CARES Act, which amended the IRS code to temporarily allow HSA-eligible HDHPs to cover telehealth and other remote care services before the high annual deductible is met.
The two notices are posted for your review.
IRS Notice 2020-29
COVID-19 GUIDANCE UNDER § 125 CAFETERIA PLANS AND RELATED TO HIGH DEDUCTIBLE HEALTH PLANS
IRS Notice 2020-33
Section 125 Cafeteria Plans – Modification of Permissive Carryover Rule for Health Flexible Spending Arrangements and Clarification Regarding Reimbursements of Premiums by Individual Coverage Health Reimbursement Arrangements
