On Dec. 27, 2020, President Trump signed the Consolidated Appropriations Act of 2021 into law. The Act provides temporary special rules for health and dependent care flexible spending accounts (FSAs) that give employees additional time to use these funds. The bill is awaiting signature from the executive branch in order to become law.
A summary of the key FSA-related changes in the bill are below.
- Unrestricted Carryover – Employers can change their health and dependent care FSAs to allow carryover of all unused amounts from 2020 to 2021 and from 2021 to 2022.
- Extended 12-Month Grace Periods – Employers can adopt a 12-month grace period for unused benefits or contributions in health and dependent care FSAs for plan years ending in 2020 or 2021. Please note that extending the FSA grace period may have consequential impacts on eligibility for employers who also offer Heath Savings Accounts (HSAs).
- Allowances for Terminated Employees – Health FSA participants who terminate their employment during the 2020 or 2021 plan year can spend down their unused balances for expenses incurred through the end of the plan year in which the termination occurred, including any grace period (similar to what has been previously permitted for dependent care amounts).
- Increased Eligibility Age for Dependent Care – The age for eligible dependents in a dependent care FSA can be increased from 12 to 13 for the 2020 plan year.
- Election Changes without Qualifying Status Events – Employers can permit prospective changes in election amounts for health and dependent care FSAs for plan years ending in 2021 without a corresponding change in status event (similar to Notice 2020-29 released by the IRS in the early stages of the COVID outbreak).
PBG will be reaching out to clients with our official recommendation pending execution of the bill into law.
Our team is committed to keeping you informed and being a resource for you. If you have any questions regarding this email or any other compliance matter, please feel free to reach out to us.
Please stay safe, healthy and positive!
Progressive Benefit Group