Flexible Spending Accounts (“FSAs”) are a popular means for employees to pay for medical/dependent care expenses using pre-tax funds.

Funds that are unused in a given plan year are generally forfeited.  Thanks to recent guidance from the IRS that’s about to change – at least temporarily.

Notice 2021-15 details the relief offered under December 2020’s Congressional stimulus package.  The law includes provisions allowing greater flexibility for employee benefit plans.  Of particular note FSA administrators are granted extra discretion in 2021 and 2022 to adjust their programs to help employees better meet the unanticipated consequences of the COVID-19 pandemic.

Highlights of IRS guidance include:

  • It provides flexibility for the carryover of unused amounts from the 2020 and 2021 plan years.
  • The guidance offers more flexibility to extend the permissible period for incurring claims for plan years ending in 2020 and 2021.
  • It provides flexibility to adopt a special rule pertaining to post-termination reimbursements from health FSAs.
  • It offers flexibility with a special claims period and carryover rule for dependent care assistance programs when a dependent “ages out” during the COVID-19 public health emergency.
  • The guidance allows certain mid-year election changes for health FSAs and dependent care assistance programs for plan years ending in 2021.