Options Include an Extended Period for Incurring Expenses and Increased Health FSA Carryover Limit

Flexible spending accounts are about to get more flexible for people who have seen their household budgets upended by the Coronavirus pandemic.

Account holders will be able to make mid-year changes on their contribution amounts — either increasing or decreasing the amount — and they’ll also be able to carry over slightly more money into next year, the Internal Revenue Service announced.

On May 12, 2020, the IRS announced more options with respect to unused amounts in health flexible spending accounts (FSAs) and dependent care assistance programs (DCAPs). These options allow employers to permit:

• An extended period for incurring health FSA or DCAP expenses; and
• Health FSA carryovers of up to $550.

Due to the COVID-19 outbreak, employees may be more likely to have unused amounts in their health FSAs or DCAPs. IRS Notice 2020-29 allows employers to permit employees to apply unused amounts remaining in a health FSA or a DCAP at the end of a plan year ending in 2020 (or a grace period ending in 2020) to pay or reimburse expenses incurred through Dec. 31, 2020.

IRS Notice 2020-33 increases the health FSA carryover limit for unused funds remaining at the end of a plan year from $500 to $550 to reflect indexing for inflation. This change is effective for plan years beginning in 2020 (and reflects the maximum amount that may be carried over to the immediately following plan year beginning in 2021).