Regulatory Roundup February 2021March 25, 2021
February’s only legislative update focuses on the IRS clarifying the CAA’s new guidance for temporary FSA relief.
With tax season in full swing, February’s only regulatory update focused on new clarifications from the Internal Revenue Service (IRS) regarding temporary relief for Flexible Spending Arrangements (FSAs).
Temporary FSA Relief Update
To help explain the impact of the Consolidated Appropriations Act’s (CAA) updates on FSA relief, the IRS issued Notice 2021-15 for your reference. Essentially, the new legislation gives companies several ways to receive temporary relief for existing FSAs:
- Carryover Expansions: You may limit how much employees carry over to the next year, and even require employees to use any carryover by a specific date.
- Grace Period Extensions: You may adopt an extended grace period up to, but no longer than, 12 months. Moving forward, you cannot adopt the new carryover expansions listed above if you also adopt this grace period extension. Only plans with pre-existing carryover expansions, or none at all, may adopt the new extension.
- Post-Termination Reimbursements: Plans that use the above carryover expansion will have different reimbursement impacts than those which use the above grace period extension. Notice 2021-15 explains these impacts for you.
- Special Rules for Dependents Who Aged Out: Notice 2021-15 confirms age out limits, eligibility criteria, and reimbursement relief.
- Prospective Election Changes: Similar to relief rules from the summer of 2020, Notice 2021-15 clarifies how employer-sponsored health plans may make prospective changes to elections for the 2021 plan year.
- Plan Amendments: Notice 2021-15 gives details on the deadline and operational requirements for plans wishing to adopt any of the above changes.
For more details on these aspects, and the notice itself, see the following alert:
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This information is provided as a courtesy, may change, and is not intended as legal or tax guidance. Employers with questions or concerns outside the scope of a Payroll Service Provider are encouraged to seek the advice of a qualified CPA, Tax Attorney, or Advisor.
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