In Light of the COVID-19 Pandemic, the IRS Announces Mid-Year Plan Changes are Allowed to FSA Elections

The IRS Announces New Guidelines for 2020

You can read all about the new IRS guidelines regarding mid-year changes to health and dependent care Flex Spending Accounts (FSAs) here Additionally, we’ll break it down as to what it means for you and your employees who’ve already made 2020 FSA elections. Furthermore, here is another great article about this topic on Forbes.

Generally, employees make their FSA elections at the end of the previous year for the coming new year. Once these elections are made, typically they cannot be changed mid-year. In the words of Mike Barrett, we advise folks to consider the following when planning new year elections:

“A rearview mirror is the best crystal ball”

FSAs are really a use it or lose it type of account. Although, employers can elect to allow for a short grace period or a small carryover each year but not both. If employees misjudge how much healthcare they’ll consume in the coming year, they may, at worst, lose some money or miss out on some tax advantages. All in all, though, FSAs are a great way to pre-fund a tax advantage account for healthcare and dependent care expenses.

However, due to the COVID-19 pandemic, a lot of things have changed! This includes the need for dependent care and even healthcare. Fortunately, the IRS has taken FSAs into consideration.

Depending upon whether your employees now realize they are overfunded or underfunded with their health and/or dependent care FSAs, they can make the appropriate mid-year change.

What Can Be Changed?

Here are all the things that employees can change mid-year to FSAs:

  • Make a new election to employer-sponsored FSA on a prospective basis
  • Decrease FSA election on a prospective basis
  • Increase FSA election, within the 2020 FSA contribution limits, on a prospective basis
  • Revoke 2020 FSA election amounts on a prospective basis
  • Employers may amend their § 125 cafeteria plan to have an extension of time for incurring claims. This is for plans which either have the grace period ending in 2020 or a plan year ending in 2020.

The last bullet point deserves a little more of an explanation. Typically, employers may allow either, but not both, a carryover or a grace period for unused FSA funds. The current carryover limit is $550 and the current grace period is up to 2 months and 15 days. The IRS is now allowing an extension of time for incurring claims to be available to both § 125 cafeteria plans with a grace period and a carryover.

The IRS lists some practical examples in their publication (pages 10 & 11) that help clarify different scenarios.

Changes for Health Savings Accounts (HSAs)

To be eligible to contribute to an HSA, one must be enrolled on a high deductible HSA qualified plan.

We’ve all seen an increase in telemedicine appointments lately! Typically, telemedicine arrangements provide coverage before the minimum annual deductible is met which would disqualify a plan from being HSA qualified. However, section 3701 of the CARES Act amended § 223 of the code to temporarily allow HSA-eligible plans to cover telehealth and other remote services.


The COVID-19 pandemic is affecting many different aspects of the healthcare world. We will continue to write about these changes as they evolve.




Déjà Vu, Again – Small Group Transitional Relief Plans (pre-ACA) Extended Through 2020

Buried far below the most recent headlines related to eliminating the ACA, The Centers for Medicare and Medicaid (CMS) once again announced that employers in the small group market still enrolled in Transitional Relief Plans (pre-ACA) may keep their existing policies and plans for another year. CMS stipulates that ultimately the discretion for granting an extension again rests with state regulators and the respective participating insurance carriers who continue to make those plans available.  As we learned last year a few insurance carriers (e.g. Aetna) elected not to extend the Transitional Relief Plans beyond 2018. They instead chose to eliminate the option of renewing the old plans thus requiring impacted employers to move to ACA plans or one of the market compliant alternatives (e.g. level funding, MEWA, etc).

For more info click on the link below:

Extended Non-Enforcement of Affordable Care Act-Compliance With Respect to Certain Policies

IRS Changes 2018 HSA Family Contribution Limit

On March 5, 2018 the IRS announced in it’s IRS HSA Bulletin that the 2018 contribution limit for Health Savings Accounts (HSA) linked to family coverage is now $6,850 from the previously announced $6,900.  For more information regarding these changes please see the attached IRS HSA Bulletin or linked SHRM article



Questions about Obamacare and Tax Season?

Here’s Some Info To Help…

If an employee (and others in their respective tax household) had health coverage for the entire year (employer sponsored, individual plan, Medicare, Medicaid, etc.,) they’ll only need to simply check the box on line 61 of Form 1040, line 38 of Form 1040-A, or line 11 of Form 1040-EZ and they’re done.

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