IRS Allowing Mid-year Changes to Health and Dependent Care Plan Elections

Posted on Wed, May 13, 2020 ©2020 Drucker & Scaccetti

HealthCareCOVID-19 has led to changes in many employees’ circumstances, from changes in a spouse’s employment and benefits eligibility to significant changes in medical or dependent care expenses. These changes in circumstances mean that many employees may need additional flexibility in their Section 125 Cafeteria Plans.  Various employers have indicated a willingness to offer employees such flexibility and the IRS has responded favorably by recently issuing Notice 2020-29.

 

Below are the highlights of Notice 2020-29

 

Employer Sponsored Health Coverage

  • Section 125 Plans may now allow for the following mid-year changes to employer sponsored health coverage:
    • Make a new election on a prospective basis if the employee previously declined coverage
    • Revoke an existing election and make a new election to enroll in different health coverage sponsored by the same employer on a prospective basis (including changing from self-only coverage to family coverage)
    • Revoke an existing election on a prospective basis if the employee attests in writing that the employee is enrolled or immediately will enroll in other comprehensive health coverage not sponsored by employer
  • High Deductible Health Plan (“HDHP”) allowed changes:
    • Temporarily allow HSA-eligible HDHP’s to cover telehealth services retroactively to January 1, 2020
    • HDHP’s will not fail to be an HDHP by providing services, testing and treatment of COVID-19

Health FSA

  • Employees may be allowed to revoke an election, make a new election, or decrease or increase an election on a prospective basis
  • Employees may be allowed to apply unused amounts at the end of a grace period ending in 2020 or plan year ending in 2020 for medical expenses incurred through December 31, 2020
  • Employees may be allowed an increase in allowed carryover from 2020 to 2021 from $500 to $550 per IRS Notice 2020-33

Dependent Care Assistance Program

  • Employees may be allowed to revoke an election, make a new election, or decrease or increase an election on a prospective basis
  • Employees may be allowed to apply unused amounts at the end of a grace period ending in 2020 or plan year ending in 2020 for dependent care expenses incurred through December 31, 2020

IMPORTANT NOTE

These allowed changes require plan amendments and employee notification.  Employers should consult with their benefits brokers or providers to make the required plan amendments as soon as possible to avail their employees of the relief offered under Notice 2020-29.

 

Continue to visit our COVID-19 Tax Resource Center for up-to-date information on how the coronavirus pandemic may impact your tax filings, payments, and planning. We encourage you to share the page with others. Through this unprecedented series of events, you can count on The Tax Warriors® at Drucker & Scaccetti to help. Call on us for assistance.

Topics: FSA, HSA, high deductible health plan, healthcare, IRS, coronavirus, COVID-19, Plan elections, Dependent care expenses, Section 125, Cafeteria Plan Health Insurance, Notice 2020-29, Health expenses

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