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Consolidated Appropriations Act, 2021: Top Practical Considerations on FSA, Election Change Relief

On December 27, 2020, the latest COVID relief bill, the Consolidated Appropriations Act, 2021, was signed into law.

Under the FSA changes, employees need not lose the benefit of the dollars they set aside from their pay into healthcare and dependent care FSAs and may use the amounts contributed for up to 12 months after the end of the 2020 or 2021 plan years. These provisions are optional, like the prior relief from IRS Notices 2020-29 and 2020-33 for 2019 elections, and, if implemented, require plan amendments.

The law includes several provisions that provide relief for health and dependent care flexible spending accounts. Employers may, but are not required to, permit the following:

  1. Carryover of unused funds, with no dollar limit, from a plan year ending in 2020 and/or 2021 to a plan year ending in 2021 and/or 2022; or
  2. Extension of the grace period to up to 12 months after the end of the plan year for a plan year ending in 2020 and/or 2021.

The above applies to both health and dependent care FSAs.

  1. Employees who cease participation in a health FSA during the calendar year 2020 or 2021 may continue to receive reimbursements from unused benefits or contributions for claims incurred through the end of the plan year in which such participation ceased (including a grace period if applicable).
  2. Increase the maximum age (by one year) for certain dependent care beneficiaries who aged out during 2020, and provide additional relief for such dependent care beneficiaries in 2022.
  3. Prospective modification of election amount for health and dependent care FSAs for a plan year ending in 2021.

As stated above, these provisions are not mandates but are options for employers to consider. Plan amendments must be made by the end of the first calendar year beginning after the end of the plan year in which the amendment is effective (for example, calendar 2020 plan amendments must be adopted on or before December 31, 2021), provided the plan must be operated consistent with the terms of the amendment beginning on its effective date.

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