The Internal Revenue Service (IRS) today issued guidance that extends the period for filing claims under flexible spending arrangements (FSAs) and dependent care assistance programs, and allows taxpayers to make mid-year changes.

The IRS explains that the guidance addresses unanticipated changes caused by the coronavirus outbreak "and provides that previously provided temporary relief for high deductible health plans may be applied retroactively to January 1, 2020, and it also increases for inflation the $500 permitted carryover amount for health FSAs to $550."

The IRS summarizes the two guidance documents issued today (Notices 2020-29 and 2020-33) as follows:

Notice 2020-29 provides:

• increased flexibility with respect to mid-year elections made under a § 125 cafeteria plan during calendar year 2020 related to employer-sponsored health coverage, health Flexible Spending Arrangements (health FSAs), and dependent care assistance programs;
• increased flexibility with respect to grace periods to apply unused amounts in health FSAs to medical care expenses incurred through December 31, 2020, and unused amounts in dependent care assistance programs to dependent care expenses incurred through December 31, 2020;
• that the relief provided in Notice 2020-15, 2020-14 IRB 559 regarding high deductible health plans and expenses related to COVID-19, and in Section 3701 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) regarding a temporary exemption for telehealth services, may be applied retroactively to January 1, 2020.

Notice 2020-33 provides:

• an increase in the $500 limit for unused amounts remaining in a health flexible spending arrangement (health FSA) that may be carried over into the following year by making the carryover amount 20 percent of the maximum salary reduction amount under § 125(i), which is indexed for inflation. This calculation had been the basis for the $500 limit under Notice 2013-71, but the $500 limit did not incorporate the indexing. Thus, for 2020, under this new notice the carryover amount will increase to $550. The notice cross references Notice 2020-29 for guidance on how a § 125 cafeteria plan may be amended to allow prospective health FSA election changes for the 2020 calendar year. Notice 2020-29 provides relief in response to the COVID-19 pandemic that, among other things, permits employers to amend § 125 cafeteria plans to provide participants flexibility to change health FSA contribution elections at such times as the employer permits through the end of 2020, provided that any changes are applied only prospectively. 
• clarification for individual coverage health reimbursement arrangements (HRAs) regarding reimbursement for premium expenses occurring prior to the beginning of the plan year (generally addressing the need to pay the premium for January health insurance coverage in December of the previous year).

​The 15-page text of Notice 2020-29 is posted here.

The 12-page text of Notice 2020-33 is posted here.

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