Benefit News

New Stimulus Package Includes Increased Flexible Spending Account Flexibility and Protections Against Surprise Medical Bills

December 28, 2020

Last night, President Trump signed the emergency stimulus package passed by Congress designed to deliver approximately $900 billion in COVID-19-related aid. The 5,393 page bill, known as the Consolidated Appropriations Act, 2021 (the Act), was combined with a $1.4 trillion spending package that will keep the government open for the fiscal year.



Included in the Act are funding for unemployment benefits, small businesses, direct economic payments to individuals, vaccine distribution, and rental assistance. Also included are provisions granting plan sponsors options to permit participants to extend the timeframes to obtain reimbursements from their health care and dependent care flexible spending accounts (FSAs). Moreover, the stimulus package includes a provision banning surprise medical bills.

Although early drafts provided direct aid to state, local, and tribal governments and established an employer liability limit, the two provisions were not included in the final text. These provisions were intensely negotiated by both parties but were ultimately dropped to ensure the passage of the bill.

The full text of the legislation can be found here.

Temporary Special Rules For FSAs

For plan years ending in 2020 and 2021, plan sponsors of health care and dependent care FSAs have increased flexibility for managing participant’s unspent balances without violating the Internal Revenue Code (Code) Section 125’s “use it or lose it” rule.

  • For plan years ending in 2020, a plan sponsor may amend its health and/or dependent care FSA to permit unspent account balances at the end of such plan year to be carried over for use during a plan year ending in 2021. Likewise, for plan years ending in 2021, a plan sponsor may amend its health and/or dependent care FSA to permit unspent account balances at the end of the plan year to be carried over for use during a plan year ending in 2022;
  • Plan sponsors may extend the grace period for any FSA with a plan year ending in 2020 or 2021 to 12 months following the end of the plan year;
  • For the 2020 and 2021 calendar years, terminated participants may continue to be reimbursed from their unused balances through the end of the plan year in which the termination occurred (typically participants have 90 days following their termination date to submit their claims for reimbursement);
  • For plan years ending in 2021, participants are permitted to make prospective changes to their health care and/or dependent care FSA contributions even though they may not have experienced a permitted change in status under the Code; and
  • The Act also includes a special carry forward rule for dependent care FSAs where the dependent aged out during the COVID-19 pandemic. For purposes of determining dependent care assistance that may be paid or reimbursed, the maximum age is increased from 13 to 14.

Plan sponsors may retroactively adopt plan amendments incorporating these provisions as long as they are adopted no later than the last day of the first calendar year following the plan year in which the amendment is effective. For example, an amendment effective for the January – December 2020 plan year must be made no later than 12/31/2021. In addition, the plan must be operated consistently with the amendment terms until the amendment is adopted.

Summary of Other Key Provisions

Ban on Surprise Medical Billings
Generally beginning with plan years on or after January 1, 2022, participants seeking either emergency care services or non-emergency care at in-network facilities, or when they are transported by an air ambulance, will be protected from balance billing for services performed by an out-of-network provider without their knowledge.

Unemployment Benefits Funding and Extension
The Act allows unemployed Americans to receive $300 per week in federal funding in addition to the existing unemployment aid they may be collecting from their state if those state-level benefits have not already run out. The additional unemployment benefits and extensions included within this bill would provide aid for 11 weeks from their expiration at the end of December 2020 through at least March 14, 2021.

Initial COVID-19 relief for unemployment benefits was introduced by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which was enacted on March 27, 2020. The CARES Act provided funding for states to waive any waiting week requirements for unemployment income (UI) benefits during the COVID-19 pandemic and to provide an additional $600 per week to all individuals receiving UI benefits for weeks of unemployment ending before July 31, 2020. President Trump signed a memorandum to extend a portion of unemployment wages after the initial $600 per week expired.

Additionally, the Act includes an extension of Pandemic Unemployment Assistance (PUA). PUA is a program that allows workers who are not traditionally eligible to receive unemployment benefits, including self-employed and gig workers, to do so. An 11-week extension in base benefits through this program is also included within the bill.

Aid for Businesses
The Act includes approximately $325 billion in funding to the Small Business Administration (SBA) to assist U.S. businesses that have been affected by the COVID-19 pandemic.

Specifically, the Act allocates $284 billion in funding to replenish the Paycheck Protection Program (PPP), which provides forgivable small business loans to eligible applicants. Under the bill, certain firms that had already applied for, received, and exhausted PPP funds will be eligible to apply for another PPP loan. To be eligible for a second PPP loan, a small business must have less than 300 employees and have sustained at least a 30% loss in revenue during any quarter of 2020. Additionally, small 501(c)(6) organizations with 150 or fewer employees that are not lobbying organizations would be eligible for a PPP loan with this round of funding.

The Act also provides the following with regard to the PPP:

  • Expansion of expenses eligible for loan forgiveness to include supplier costs and investment costs related to modifying facilities and obtaining personal protective equipment for safety
  • Simplified loan forgiveness process for businesses that have borrowed $150,000 or less in PPP loans
  • Confirmation that business expenses paid for with PPP loan funds are tax-deductible

Businesses interested in applying for a PPP loan should contact their lender for more information.

The bill also directs $12 billion for minority-owned businesses, up to $15 billion in funding for independent live-venue operators affected by COVID-19, and another $20 billion for small business grants.

Direct Economic Impact Payments
The Act includes another round of economic impact payments, commonly referred to as stimulus checks. The CARES Act provided the first round of stimulus checks for eligible Americans. Under the CARES Act, tax filers with an adjusted gross income of up to $75,000 for individuals and up to $150,000 for married couples filing joint returns were eligible to receive the full payment of $1,200 per individual or $2,400 per married couple. Parents were also eligible to receive $500 for each qualifying child.

The Act follows the same eligibility guidelines as the CARES Act, but the amount of the stimulus check is less this time around. Instead of being eligible for a $1,200 payment, qualifying taxpayers are eligible for a payment of $600 per individual or $1,200 per married couple. Parents will also be eligible to receive $600 for each qualifying child.

Student Loan Repayments
A temporary provision under Code section 127 added by the CARES Act that permits employer qualified assistance programs to repay employee student loans is amended to extend until January 1, 2026. It had been set to expire on January 1, 2021.

Miscellaneous
The bill provides funding for a variety of other issues, including:

  • U.S. Postal Service—$10 billion;
  • COVID-19 Testing and Tracing—$20 billion;
  • COVID-19 Vaccine purchase and distribution—$28 billion;
  • Transportation Industry Relief (Airlines, Airports, Buses, Transit and Amtrak)—$45 billion;
  • Education—$82 billion;
  • Child care providers—$10 billion;
  • Housing Assistance (Rental)—$25 billion;
  • Extension of the federal moratorium on rental evictions until January 31, 2021;
  • Tax credit enhancements, including the employee retention tax credit for employers that keep employees on payroll and provide paid sick leave. Under the bill, the earned income tax credit and child tax credit would become available to those who lost wages or their jobs during the COVID-19 pandemic and expand the low-income housing tax credit; and
  • While the bill doesn’t provide direct aid to state, local and tribal governments, it does extend the deadline for states and cities to use unspent money provided by the CARES Act. Under the CARES Act, states and cities had until the end of 2020 to spend their funds, and any unspent amount would have to be returned to the Department of Treasury. This bill extends the original CARES Act deadline for a full year.

For additional information, please contact your Burnham Benefits Consultant or Burnham Benefits at 949-833-2983 or inquiries@burnhambenefits.com.

Burnham Benefits does not engage in the practice of law and this publication should not be construed as the providing of legal advice or a legal opinion of any kind. The consulting advice we provide is intended solely to assist in assessing its compliance with the Patient Protection and Affordable Care Act and other applicable federal and state law requirements, and is based on Burnham Benefit’s interpretation of federal guidance in effect as of the date of this publication. To the best of our knowledge, the information provided herein, and assumptions relied on, are reasonable and accurate as of the date of this publication. Furthermore, to ensure compliance with IRS Circular 230, any tax advice contained in this publication is not intended to be used, and cannot be used, for purposes of (i) avoiding penalties imposed under the United States Internal Revenue Code or (ii) promoting, marketing or recommending to another person any tax-related matter.

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