IRS Changes to Cafeteria Plans
On May 12, 2020, the Department of the Treasury (the Treasury) and the Internal Revenue Service (IRS) published two notices as part of ongoing relief efforts related to the coronavirus (COVID-19) outbreak. The guidance provided in these notices allow employers the option for additional flexibility with respect to their section 125 cafeteria plans, Health Flexible Spending Arrangements (health FSAs) and Dependent Care Flexible Spending Arrangements (dependent care FSAs) during the 2020 calendar year.
Summary of Changes
These notices provide the option to apply the additional flexibility outlined below to your plan benefits.
- Employers may amend their health FSAs and/or dependent care FSAs with a grace period ending in 2020 or a plan year ending in 2020 to permit employees to apply unused amounts to pay for reimbursable expenses incurred on or before December 31, 2020. This relief does not apply to plans with carryover that ended December 31, 2019 or earlier with claim it by runout dates in 2020.
- During the 2020 calendar year, employers may amend their plan to offer the ability to make prospective mid-year elections for health coverage, health FSAs, and dependent care FSAs.
- For plans beginning in 2020, employers may amend their health FSAs to permit employees to carryover up to $550 to subsequent plan year beginning in 2021 (now indexed for inflation).
- Clarifies relief for high deductible health plans to cover expenses related to COVID-19, and a temporary exemption for telehealth services retroactively to January 1, 2020 (was March 27, 2020).
- Clarifies that the Individual Coverage Health Reimbursement Arrangement (ICHRA) is permitted to treat healthcare premiums as incurred on (1) the first day of each month of coverage, (2) the first day of the period of coverage, or (3) the date the premium is paid. Payment of the premium for coverage made before the beginning of the plan year can be reimbursed if the insurance coverage starts during the plan year.
The notices are complex, employers should consult their legal advisor for conclusive guidance in their circumstances.
S125 Cafeteria Plans and Related to High Deductible Health Plans – COVID-19 Guidance
High Deductible Health Plans and Expenses Related to COVID-19