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.
Deb Seidman has over 25 years' experience working to enhance the effectiveness of leaders and their organizations, enabling them to execute their business strategy. She has worked with clients across a range of industries including financial services, pharmaceuticals, technology, government, and non-profit. Throughout her career, both in corporate operating roles and as an external consultant and coach, she has partnered with clients to gain insight into business challenges and opportunities, foster collaboration within and between teams, and facilitate organizational transformation. She holds a Bachelor of Science degree in Industrial and Labor Relations from Cornell University and a Master of Arts degree in Politics from New York University. She is an IAF Certified Professional Facilitator. Deb lives in New York City where she can be found at her printmaking workshop creating lithographs and woodcut prints.
Guillermo Rodriguez has occupied diverse roles over the past 20 years, from in-house corporate positions to being a self-employed consultant, and is currently serving as a virtual CFO at Summit Virtual CFO by Anders. His journey began with a major corporate job, where he had the opportunity to explore various functional departments, gaining insights into different aspects of the business, including forecasting around a significant acquisition. He later became a virtual CFO within the cannabis industry, helping guide cannabis operators down the path of profitability.
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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.
