Save money with Covid-Relief’s new FSA rules

Your flexible spending account (FSA) in the workplace may no longer be strictly “use or lose“–the last law of relief allows you to roll about funds. In other words, If you lost your FSA spend in 2020, you can use those funds in 2021. Here’s what you need to know.

Changes to your FSA

Many workers have FSAs through their employer, which allows them to use pre-tax dollars to pay for health or care expenses for unreimbursed dependents, such as glasses, over-the-counter medications or trips to the dentist (for more information on eligible expenses from 2021 on, read this Lifehacker Post )

The handicap with FSAs (as opposed to HSAs) is that they are “Use or lose” accounts –the money you deposited has to be spent by the end of the company’s fiscal year – with two exceptions, as some employers allow one of two options:

• Up to $ 550 from the fund can be transferred to the next year to pay claims from the previous year.
• A grace period of 2.5 months in the new year, for the payment of claims from the previous year.

younder the Taxpayer Certificate and Disaster Tax Reduction Act 2020, however, these rules have been changed (rules that also apply to Dependent Care FSAs, which are similar plans that benefit an employee’s dependents). According to the legal news website, JD Supra, FSA holders can take advantage of these changes:

• Grace and transfer periods extended to 2021 and 2022. Any balance up to $ 5,000 (for families) at the end of 2020 can be carried forward to 2021, and any balance at the end of 2021 can be carried forward to 2022. Likewise, the periods grace periods are extended from the original 2.5 months to the end of the full calendar year (ie you have 2021 to use your 2020 funds).
• Elections for FSA accounts are no longer irrevocable during the 2021 plan year. Elections may be changed prospectively by employers for any reason during 2021.
• Disconnected participants can now access their accounts until the end of the year of the plan in which their participation ends, plus any grace period. (However, it is not clear whether this applies only to unused contributions at the termination date or to the full amount elected – this will require clarity from the IRS).
• The maximum age is increased from 13 to 14 years for the calendar year 2020, for one year of the plan for which the regular enrollment period ended on or before January 31, 2020. This means that an employee can be reimbursed for dependent care expenses for your 14 year olds during 2020 (the same rule applies to 2021, but only for an unused balance carried over to 2021 from 2020).

Finally, while these changes can be applied retroactively, according to the revision of national legislation, none of these changes are mandatory—An employer may use some or all of these changes, or none. At a minimum, the new law loosens IRS restrictions, but you will want to check with your employer about if and when these changes will take effect for you FSA Plan.