IRS Updates: Funding Accounts

On May 12, 2020, the IRS issued Notice 2020-29 and Notice 2020-33, which provide participants in Medical Flexible Spending Accounts (Medical FSAs), Dependent Care FSAs, Individual Coverage Health Reimbursement Arrangements (ICHRAs) and High-Deductible Health Plans (HDHPs) temporary help during the COVID-19 pandemic.

Here’s how each plan is affected:

Medical FSAs/Dependent Care FSAs

• Employers may allow employees to newly elect, change or revoke a Health or Dependent Care FSA election in the middle of a plan year. Prior to this Notice, the employee needed to experience an IRS-approved qualifying event in order to make mid-year changes. Notice 2020-29 temporarily waives that requirement. This optional relief applies to mid-year elections made during calendar year 2020.
• Employers may allow their employees to tap into unused funds from any FSA plan with a grace period or plan year that ends in 2020. These unused funds can then be used on medical care or dependent care expenses incurred through December 31, 2020.

Medical FSAs

• In addition to the above changes, the amount a Medical FSA participant can carry over from one plan year to the next year is now $550 (an increase of $50). This change is in effect for any plan year that began on or after January 1, 2020. In future years the carry over amount will be indexed for inflation.

ICHRAs

• Employers may now reimburse employees who participate in an ICHRA for their individual insurance premium expenses paid prior to the start of their ICHRA’s plan year, as long as the insurance premiums being reimbursed are for the same plan year as the ICHRA. That means if an employee pays for part or all of his/her individual insurance prior to the ICHRA’s plan year, the employer can now reimburse those expenses immediately when they’re paid rather than requiring the employee to wait until Day 1 of the ICHRA’s plan year.

HDHP

• Telehealth and remote care expenses may now be covered by an HDHP, even if the employee has not reached his/her deductible. This relief is in effect for plan years beginning on or before December 31, 2021 and applies to services provided back to January 1, 2020. This is a retroactive expansion of the CARES Act, which allowed these expenses to be covered from March 27, 2020 (the date the CARES Act was signed).

For more information, check out the IRS’ news release on the two Notices. We cannot provide legal or tax advice regarding the Notices or their requirements. For those questions, you should consult your own counsel.