The temporary changesRecognizing the current extraordinary situation, the new guidance makes several temporary changes:
- Employers can permit employees to carry over unused funds from their 2020 FSAs to 2021, and from 2021 to 2022. Ordinarily, these accounts have a “use it or lose it” rule under which the employee forfeits unused funds at the end of the year. If an employee contributed $5,000 to a dependent care FSA in 2020 but used only $3,000 because he or she worked from home, they can now carry the remaining $2,000 forward for use in 2021.
- Alternatively, employers can extend the grace period for employees to spend unused FSA funds. Normally, employees have two and a half months from the end of the plan year to spend the money on qualifying expenses. The temporary rules permit employers to give them up to 12 months to do it.
- Employers can allow certain employees to use dependent care FSA funds for care of children up to age 14. The normal cut-off age is 13.
- Employers may allow employees to change their future contributions to 2021 FSAs mid-year, something that is ordinarily prohibited.
- Employers may also permit employees to make mid-year health plan changes. Employees who did not enroll in the employer’s health plan during open enrollment will be able to do so. Employees can change available plans, or they can drop coverage entirely if they can show that they have replacement coverage such as through a spouse’s employer.
- If an employee changes from a high-deductible health plan to one with copayments or lower deductibles (or vice versa), employers can also permit them to switch mid-year between contributing to an HSA or an FSA. By law, an HSA must be coupled with an HDHP.
- Lastly, they can allow employees who stop contributing to a health care FSA mid-year to receive reimbursements through the end of the plan year.
- The law does not require employers to make these changes.
- The changes expire for plan years starting in 2022 and later.