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.
Grant Heckenkemper, CPA, is director of advisory services at L&H CPAs & Advisors in Dallas, where he advises founder-led companies on mergers and acquisitions, strategic finance and contract CFO engagements. He began his career in the audit practice at KPMG and is a CPA registered in the State of Texas.
Arun John is serving as director of insurance consulting at Virtusa, Arun John brings over 20 years of experience in Property & Casualty insurance technology, underwriting, and claims transformation. He leads strategic consulting and solutioning initiatives that help global insurance carriers modernize core policy administration and automate complex processes using generative AI, machine learning, and AR/VR accelerators. His career spans key consulting and product roles at Tech Mahindra, Cognizant, and IFFCO-Tokio. He holds an
engineering degree from Periyar University and AWS credentials in Generative AI project
planning.
Nadia van de Walle is the head of banking inclusion at Wells Fargo.
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.
