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.
Debbie Ivie, CPCU, AIM, NcIA, is learning experiences director of the Network of Vertafore Users (NetVU). She can be reached at debbie@netvu.org or 972.409.6209.
Steven Schwartz is VP of Insurance Strategy and Underwriting at Safe Security. Previously, he was CRO at Periculus, and prior, was VP Strategy and Insurance Practice at Cytegic. Steven serves on the Advisory Board at PACE University's Seidenberg School for Computer Science and Information Security, and is a co-founder of both The Data Union and Personal Data Week, introducing the topic of "personal data" and its implications for society, industry, and regulation such as GDPR, CCPA, NYDFS and more to more than 30k global members. He was nominated to NYC's 2017 "33 Under 33" and currently holds his Investment Advisor License (Series 65) and Property, Casualty, Health and Life Insurance licenses.
Andrew Hersh is the CEO at Sigma7, a global risk information and services platform. He is an expert in the fields of risk management and national security and has contributed to the evolution of risk management in corporations and governments. Andrew has served as a Senior Fellow at Auburn's McCrary Institute and George Washington University's Center for Cyber and Homeland Security. He has served as a Member of the Infrastructure Advisory Committee for the State of New Jersey Office of Homeland Security & Preparedness and is a Member of the Cyber & Technology Council at Business Executives for National Security.
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.
