IRS Guidance Update

Healthcare and Dependent Care FSA Accounts


On May 12, 2020 the IRS released guidance (in the form of Notice 2020-29) to allow temporary changes to Section 125 Cafeteria plans to assist with the response to the COVID-19 outbreak. The Notices provided employers with the option to:

  • Allow consumers to make mid-year changes to their active 2020 employer-sponsored health coverage, Health FSA, and Dependent Care FSA plan elections.

Due to confusion in the marketplace surrounding the recently released IRS guidance surrounding which FSA/DCA Plan Years are eligible to allow claims to be incurred through 12/31/2020. HRCTS has reached out to the IRS to clarify and have listed the updated response below.

  • Health FSA and/or Dependent Care FSA Plans that have a Grace Period feature that runs in 2020 or the Plan Year end date falls in 2020 may allow unused funds to reimburse expenses incurred through December 31, 2020.                                                                                    
    • Any Employer with the 2 ½ month Grace Period feature and the Grace Period was still active as of 1/1/2020 or later.
    • Any Employer with a Plan Year end date in 2020.
*Plan Years that ended in 2019 but didn’t have the Grace Period feature are not eligible for this extension to incur claims through 12/31/2020.
What does this mean for you and your employees?
  • The mid-year changes announced by the IRS yesterday can be handled easily with HRCTS.  There is no change to how you would let us know about any enrollment, election changes and terminations. This will just allow you as the employer to accept those changes from your employees.
  • Grace period updates on Health FSAs and Dependent Care plans can be updated by HRCTS in the system to allow claims to be filed with a date of service through 12/31/20.  This date will be carried through to the Visa Debit Card and will be managed seamlessly in the system should you choose to extend the grace period.

HRCTS will be implementing the above changes on your account unless you request otherwise. Please contact your Dedicated Account Manager or the Client Relations Department by phone (603) 647-1147 option 2, or email by Wednesday May 20th if you do not want these changes made.

Also announced alongside the temporary changes was Notice 2020-33, which increases the amount of funds that can carry over in Health FSA plans from $500 to $550 and indexes that amount for inflation in the future. The increase would apply to plan years starting in 2020.  That does mean that if a plan runs 1/1/20-12/31/20; up to $550 can rollover to the plan year 1/1/21-12/31/21.  This is not a retroactive change.

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