The Internal Revenue Service (IRS) released guidance to allow temporary changes to Section 125 cafeteria plans. These changes 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 COVID-19 pandemic and acknowledges that previously provided temporary relief for high deductible health plans may be applied retroactively to January 1, 2020. It also increases for inflation the $500 permitted carryover amount for health FSAs to $550.

This notice 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 by making a new election, revoking an election or decreasing or increasing a current election
  • 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

If you have any questions about how these changes impact you, please contact us.