IRS Midyear Provisions Offer Changes and Flexibility

Internal Revenue Service sign at the IRS Building in Washington, DC

To assist with the nation’s response to the 2019 Novel Coronavirus outbreak, the IRS announced last week with Notice 2020-29 its intention to provide increased flexibility for midyear elections related to employer-sponsored health coverage, health Flexible Spending Arrangements, and dependent care assistance programs.

Notice 2020-29 states that Sec. 125 Cafeteria Plans may permit employees, who are currently eligible to make salary reduction contributions under the plan, to:

  • make a new election on a prospective basis if the employee initially declined to elect employer-sponsored health coverage;
  • revoke an existing election and to make a new election to enroll in different health coverage sponsored by the same employer on a prospective basis, and
  • revoke an existing election on a prospective basis.

Health Flexible Spending Arrangements (health FSAs) will allow an employee to revoke, make new, or increase/decrease an existing election applicable to a health FSA on a prospective basis.

Dependent Care Assistance Program provides that an employee may revoke, make new, or increase/decrease an existing election regarding a dependent care assistance program on a prospective basis.

In addition, for unused amounts remaining in a health FSA or a dependent care assistance program under the § 125 cafeteria plan as of the end of a grace period or plan year ending in 2020, a § 125 cafeteria plan may permit employees to apply those unused amounts to pay or reimburse medical care expenses or dependent care expenses, respectively, incurred through December 31, 2020.

Separately, relief provided in Notice 2020-15, 2020-14 IRB 559 regarding high deductible health plans (HDHPs) and expenses related to COVID-19, and in section 3701 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) (P.L. 116-136, 134 Stat. 281 (March 27, 2020)) regarding an exemption for telehealth services, may be applied retroactively to January 1, 2020.

Finally, Notice 2020-33, also issued last week, modified Notice 2013-71 to increase the carryover limit from $500 to $550 of unused amounts remaining as of the end of a plan year in a health FSA under a Sec. 125 cafeteria plan. This notice included a provision to allow a health plan to reimburse individual insurance policy premium expenses incurred before the beginning of the plan year for coverage provided during the plan year.

You may also be interested in this blog post about Section 139 qualified disaster relief payments for certain employee expenses related to COVID-19.

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