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.
Tammy Nichols Schwartz, CPCU, is the Senior Director of Data and Analytics at Guidewire, the leading provider of technology solutions to the P&C insurance industry. She has more than 20 years of experience as an actuary, underwriter, and executive at leading insurance carriers and financial institutions including Farmers Insurance and Bank of America. Prior to Guidewire, Schwartz was the Founder and CEO of Black Swan Analytics.
Gavin Polizzo, Senior VP of North America, Cloudstaff, has over 24 years of experience, including 10 years in Executive leadership roles with global companies, such as Verizon and ADP. He is known for developing teams, increasing revenue, and creating processes to enhance the customer experience. Gavin holds an MBA from Northeastern University in Boston as well as a Bachelor of Arts degree from the University of Wisconsin in Madison.
David Smith, President at ilumivu, the company that provides healthcare decision support applications using real-time data from smartphones and standard smartwatches.
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.
