Covid-19 Related Spending Account Accommodations

The federal government has now provided employers with additional relaxations affecting tax preferred, Flexible Spending Accounts (FSAs), in light of the Coronavirus pandemic.  These relaxations come about as a result of the passage into law of the Consolidated Appropriations Act, 2021.  It’s important to note that these FSA changes are not mandatory either in total or individually.  Employers may opt to amend their FSA plans to allow any or all of these provisions, but are not compelled to do so.

1. Rollovers – Allow employees to carry over ALL (rather than the current, $550 allowed amount) unused amounts in a FSA and/or Dependent Care Account (DCA) from the 2020 or 2021 plan year to the next plan year.
2. Grace Periods – Extend the FSA grace period to 12 months following the end of the plan years for those plan years that end in 2020 or 2021.
3. Qualifying Dependent Age – Allow DCA reimbursement for expenses incurred for a child through the plan year where the child attains age 14. (Note: Under current rules, DCA reimbursements are not allowed beyond age 13.)
4. Election Changes – Permit mid-year election changes irrespective of an otherwise required status change/qualifying event.
5. Reimbursements Post-Termination – Allow reimbursements through the end of the 2020 or 2021 plan year in which participation ends, including any grace period or extended grace period even if those reimbursements were incurred post termination of employment.

Spending account administrators are currently offering employers the option of making any or all of the allowable FSA/DCA changes, via plan amendment.  Employers should weigh the pros and cons of amending their FSA plans to allow these relaxations, to assure the “juice is worth the squeeze”.

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