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New IRS Rules for FSA Accounts in Response to COVID-19

As a result of the current COVID-19 pandemic, the IRS recently issued revised guidelines for sponsors of employee “cafeteria plans” that offer tax benefits under Section 125 of the federal tax code, including Flexible Spending Accounts (FSA’s).
  • Participants can make changes to their elections for FY 2021 through August 30, 2020.
  • Participants will have until December 31, 2020 to incur claims from FY 2020.  This effectively extends the plans’ current grace period 3.5 months, from September 15 to December 31.
  • The FY 2020 claim filing deadline, for claims or purchases with a date of service through December 31, 2020, will be moved from October 15, 2020 to January 31, 2021.

New IRS Rules for FSA Accounts

Many members have expressed concern that their funds may be forfeited due to the closure, cancellation, or delay of elective medical procedures, dental appointments, or summer camps.  As a result of the current COVID-19 pandemic, the IRS recently issued revised guidelines for sponsors of employee “cafeteria plans” that offer tax benefits under Section 125 of the federal tax code, including Flexible Spending Accounts (FSA’s).  This will allow GIC members who participate in these plans greater flexibility and opportunity to use all or most of the funds withheld during the 2020 Fiscal Year (ending June 30, 2020) and for next year. 

The GIC has worked with its FSA provider, Benefit Strategies, to implement these new guidelines for the benefit of its membership.  As we are nearing the end of annual enrollment with these revised guidelines being released, we will allow anyone who has already enrolled the opportunity to adjust their elections for Fiscal Year 2021 through August 30, 2020. If you need to make a change in your FSA elections, increasing, decreasing, or cancelling your payroll contributions, please visit the Benefit Strategies website at benstrat.com/gic-fsa and then click on the link for the Enrollment/Change e-form. As always, if you have already spent or been reimbursed for more money than has been withheld for your HCSA (medical FSA) account, those deductions must continue until your account is made whole.

You will also have more time to spend your balance from the current Fiscal Year (FY 2020), until December 31, 2020, and you will have until January 31, 2021 to file claims with dates of service from 7/1/2019 – 12/31/2020.

The GIC and Benefit Strategies have already allowed participants to make reductions to or stop their Dependent Care (DCAP) deductions with a Qualifying Event for the current fiscal year without documentation requirements as a result of the pandemic, as a change in cost or availability of daycare has always been considered a Qualifying Event for these accounts.  

Also, it is important to remember that you may not have a cancellation Effective Date more than 60 days in the past, in keeping with the requirements around Qualifying Events.  You may be refunded for deductions withheld after that Effective Date (but only if you have not already been paid out those deductions in claim reimbursements). 

Important Reminders

  • While participants may change their FY 2021 elections through August 30, they are required to make their initial enrollment prior to the June 1 annual enrollment deadline.
  • The maximum payroll contribution amount for DCAP participants ($192.30 for bi-weekly payrolls and $96.15 for weekly) will remain in effect.  This prevents participants from accidentally exceeding the IRS maximum contribution limits for either the calendar/tax year or the fiscal/plan year.
  • If you have an unused balance in your FSA account after June 30, you will still be responsible for paying the monthly administrative fee, the employee share of which for FY 2021 has been reduced to $1.00/month.
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