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.
Alex Timm is the Co-Founder and CEO of Root Insurance, a technology-driven carrier founded in 2015 that revolutionized the traditional auto insurance industry by basing rates primarily on driving behavior rather than demographics. A casualty actuary by training (Fellow of the Casualty Actuarial Society and member of the American Academy of Actuaries), Alex built deep expertise in corporate strategy and Property & Casualty lines at Nationwide Insurance.
Under his leadership, Root leveraged smartphone-based telematics and data science to become the nation's first licensed insurance carrier powered entirely by mobile, culminating in Ohio's largest IPO when the company went public in 2020. Alex is a Henry Crown Fellow of the Aspen Institute and serves on the Board of Directors for GoHealth, continually championing the use of advanced machine learning and mobile technology to build a fairer, more efficient insurance landscape.
Trevor Traina is the founder and CEO of Kresus.
Robert Valenzo, MBA, EA, is a former IRS Revenue Officer, including in the high-priority Abusive Tax Avoidance Transactions program, and a former manager of the IRS South Texas Collection Region. A former U.S. Air Force B-52 navigator, he founded Falcon Tax Resolution Group. He can be reached at robert@falcontaxrelief.com or 1-855-4-IRS-PRO.
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.
