The IRS announced temporary changes to section 125 cafeteria plans, allowing flexibility related to employer-sponsored health coverage, health Flexible Spending Arrangements (FSAs), and dependent care assistance programs. The guidance was issued to address the unanticipated changes in expenses many people are facing because of the COVID-19 pandemic.
The IRS is offering extra flexibility to taxpayers by:
- Extending the claims periods for taxpayers to apply unused amounts from 2019 that remain 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 need as a result of the COVID-19 pandemic; and
- 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.
In addition, the balance of a health Flexible Spending Arrangements that can be carried over from one year to the next has been increased from $500 to $550 in 2020. This amount will be adjusted for inflation each year going forward.
We will continue to monitor changes as provided by the IRS in order to keep you up to speed. If you have any questions in the interim, please feel free to reach out!
