The Internal Revenue Service issued guidance Tuesday to make temporary changes to section 125 cafeteria plans, with the goal of providing tax relief and flexibility in the midst of the novel coronavirus pandemic. The IRS is extending the claims period for health care flexible spending arrangements and dependent care assistance programs and enabling taxpayers to make mid-year changes to their accounts.
The guidance released Tuesday by the IRS deals with the unanticipated changes in expenses faced by many taxpayers as a result of the COVID-19 pandemic. The IRS is now allowing its previously provided temporary relief for high deductible health plans to be applied retroactively to Jan. 1, 2020, and also increases for inflation the $500 permitted carryover amount for health FSAs to $550.
Luis F. Rosa, certified financial planner and enrolled agent, is the founder of Pasadena, California-based financial planning firm Build a Better Financial Future.
He is host of the "On My Way to Wealth" podcast, co-founder of the BlatinX (BLX) Internship Program and co-founder of the SER Latino Advisor Summit. Among his many industry accolades, Rosa has been named to Financial Planning's list of people who will transform wealth management, to the InvestmentNews 40 Under 40 list, to Financial Advisor magazine's 10 Young Advisors to Watch, and four times to the Investopedia Top 100 Financial Advisors list. In 2023 NerdWallet named him one of eight Hispanic personal finance influencers to follow for money advice.
Rosa came to the U.S. at age 11 from the Dominican Republic. Growing up in New York City, Rosa noticed the lack of financial literacy in his community and was inspired by his parents to work hard and pursue an education. Rosa uses his platform to help spread financial literacy via media outreach as well as encourage younger and diverse planners to join and thrive in the industry.
James Gerber is the CFO of SimSpace Corp. and a former financial regulator at the Pension Benefit Guaranty Corp.
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In Notice 2020-29, the IRS is offering extra flexibility to taxpayers by:
- extending the 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 Dec. 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; 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 Jan. 1, 2020.
In conjunction with that notice, the IRS also issued Notice 2020-33, in response to the Trump administration’s Executive Order 13877, which directs the Treasury secretary to “issue guidance to increase the amount of funds that can carry over without penalty at the end of the year for flexible spending arrangements.” The notice ups the limit for unused health FSA carryover amounts from $500, to a maximum of $550, adjusted each year for inflation.
