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.
Jim Besaw is principal and chief investment officer for GenTrust, responsible for oversight, selection and management of all investment-related activity across the firm's strategies and portfolios, as well as the development of all new investment strategies at GenTrust. He co-founded GenTrust in 2011.
James Gelfand is president of the ERISA Industry Committee (ERIC), a nonprofit, Washington, D.C.-based organization that represents the largest employers in the U.S.
Jason Rauhe, CPA, leads McGuire Sponsel's global business services practice and is responsible for guiding clients and adding depth in all areas of the firm's international tax consulting services. Rauhe's extensive client and industry expertise has led him to be a sought-after published technical contributor and speaker across international tax topics around the country. Rauhe previously served as director of international tax at a Top 100 CPA Firm, where he was responsible for the firm's international tax division and served as the firm's international tax lead for major industry alliance networks. He also worked previously as vice president of global taxes at a large automotive supplier, where he managed the global tax function for the company's $7 billion business.
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.
