The Consolidated Appropriations Act, 2021 was recently approved by Congress and the President. The bill provides a number of relief measures to help people cope with the ongoing COVID-19 healthcare crisis. Among the provisions are new temporary rules for health and dependent care Flexible Spending Accounts (FSAs). The new rules allow for increased carryover amounts, extended grace periods and spend down allowances, annual election flexibility, and more.
Learn more about health and dependent care FSA rules for 2021-2022 below.
Health and Dependent Care FSA Rules for 2021-2022
In Section 214 of the bill, the legislation allows – but does not require – employers to:
- Allow health and dependent care FSA plans to carryover all unused amounts from 2020 to 2021 and from 2021 to 2022
- Permit a 12-month grace period for unused benefits or contributions in health and dependent care FSAs for plan years ending in 2020 or 2021
- Permit health FSA participants who terminate during the 2020 or 2021 plan year to spend down any unused balance through the end of the plan year in which the termination occurred; this includes any grace period;
- Extend the maximum age of eligible dependents from 12 to 13 (under age 14) for dependent care FSAs for the 2020 plan year; it also allows the increased age limit for unused amounts from the 2020 plan year carried over into the 2021 plan year; and
- Allow for prospective changes to election amounts for health and dependent care FSAs for plan years ending in 2021 without a corresponding change in status event (such as updated marital status; birth, adoption, or death of a dependent; change in employment; etc).
Plan Amendments Required
These changes are not mandatory and employers may choose to adopt some changes without having to adopt them all.
In order to implement these changes, employers must amend their plans. The deadline is the last day of the first calendar year beginning after the end of the plan year in which the amendment is effective. In other words, to adopt for 2021, you must amend your plan by December 31, 2022.
Adopting these carryover provisions may affect HSA eligibility. Before implementing these changes, it is recommended that you consult a qualified benefits counsel.
This article was written with guidance provided from articles by Alston & Bird LLP and ECFC.
DataPath Administrative Services provides health and dependent care FSA administration services for employers. Please contact us for assistance with your FSA plans.