COVID Bill Offers Employers Ability to Provide FSA Relief

The latest COVID relief bill, which was passed by Congress on December 21, 2020, has draft language that includes several provisions providing relief for health and dependent care flexible spending accounts (FSAs). Called the Consolidated Appropriations Act, 2021, it was signed into law by President Trump. Employers would be allowed, but not required, to permit the following:

• Carryover of unused funds from plan year ending in 2020 to plan year ending in 2021.
• Carryover of unused funds from plan year ending in 2021 to plan year ending in 2022.
• Grace period for plan year ending in 2020 or 2021 may be extended to 12 months after the end of the plan year.
  • Each of the above would be applicable to both health and dependent care FSAs.
• Provide employees who cease participation in a health FSA during calendar 2020 or 2021 the opportunity to receive reimbursements from unused benefits or contributions through the end of the plan year in which such participation ceased (including grace period if applicable).  At this point it is not clear whether this permits reimbursement of expenses incurred after termination or is simply an extended run-out period.
• Increase the maximum age (by one year) for dependent care beneficiaries who aged out during the pandemic. 
• Prospective modification of election amount for health and dependent care FSAs (plan years ending in 2021).

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, provided the plan must be operated consistent with the terms of the amendment beginning on its effective date. For example: 

• If the plan year you wish to amend runs from January 1, 2020 through December 31, 2020, plan amendments must be adopted by December 31, 2021.
• If the plan year you wish to amend runs from July 1, 2020 through June 30, 2021, plan amendments must be adopted by December 31, 2022.

If you are interested in implementing any of these changes, please let us know.

We cannot provide legal or tax advice regarding this draft bill or its requirements. For those questions, you should consult your own counsel.