February 23, 2021
Section 214 of the Taxpayer Certainty and Disaster Relief Act (Act), the COVID-19 relief legislation that was passed late last year as part of the Consolidated Appropriations Act, contained several provisions providing temporary special rules for health care and dependent care flexible spending accounts (FSAs).
On February 18, 2021, the Internal Revenue Service (IRS) clarified the application of these special rules in Notice 2021-15 (Notice) and provided additional relief with respect to making mid-year election changes for plan years ending in 2021. A summary of permitted changes follows. Keep in mind that all these are permitted changes - an employer does not have to adopt any of them.
The Notice provides an example of an acceptable written attestation that could be used for situations in which the employee seeks to revoke his or her health coverage and not enroll in another plan sponsored by the employer.
Name: _______________________ (and other identifying information requested by the employer for administrative purposes).
I attest that I am enrolled in, or immediately will enroll in, one of the following types of coverage: (1) employer-sponsored health coverage through the employer of my spouse or parent; (2) individual health insurance coverage enrolled in through the Health Insurance Marketplace (also known as the Health Insurance Exchange); (3) Medicaid; (4) Medicare; (5) TRICARE;(6) Civilian Health and Medical Program of the Department of Veterans Affairs (CHAMPVA); or (7) other coverage that provides comprehensive health benefits (for example, health insurance purchased directly from an insurance company or health insurance provided through a student health plan).
Employers can retroactively adopt plan amendments incorporating these provisions as long as the plan is operated consistently with the amendment terms until the amendment is adopted and the amendment is adopted by the last day of the first calendar year following the plan year in which it is effective. For example, if an employer permits mid-year changes to be made to a 2021 calendar year plan, it must amend its plan no later than December 31, 2022. 2020 plan year changes must be made by December 31, 2021.
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) also amended the Code to allow unprescribed expenses for menstrual care products and over-the-counter drugs to be reimbursed from Health Care FSAs, as well as other medical reimbursement accounts such as Health Reimbursement Accounts (HRAs) and HSAs. Plans may be amended to permit reimbursement of such expenses incurred for any period beginning on or after January 1, 2020.
In determining the extent to which it may want to adopt any or all of the above election changes, an employer should consider the potential for adverse selection of health coverage by employees. One option might be to limit elections to circumstances in which an employee’s coverage will be increased or improved as a result of an election. The Notice provides a couple of examples, such as permitting an employee to switch from self-only coverage to family coverage, or from a low option plan covering in-network expenses only to a high option plan that also includes out of network coverage.
Amounts contributed to a dependent care flexible spending account (FSA) are required to be reported in Box 10 of Form W-2. Under current guidance (Notice 2005-61), employers may report in Box 10 for a year the salary reduction amount elected by the employee for the year for the Dependent Care FSA (plus any employer matching contributions) and are not required to adjust the amount reported in Box 10 to take into account amounts that remain available in a grace period. This rule continues to apply with respect to employers who amend their cafeteria plans to provide for the temporary flexibility provided by Section 214 of the Act. For this purpose, any amount carried forward from 2019 and used in 2020, whether a carryover or an extended period for incurring claims, is treated as an amount that remains available in a grace period.
For additional information, please contact your Burnham Consultant or Burnham, A Baldwin Risk Partner at 949‐833‐2983 or firstname.lastname@example.org.
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.