New Relief Provisions for FSAs in Consolidated Appropriations Act of 2021
Welcomed Updates Pertaining to Flexible Spending and Dependent Care Accounts Announced
On December 27th, 2020, The President signed the Consolidated Appropriations Act of 2021 to fund the government and provide economic relief in response to the pandemic.
With this Act comes notable changes to Flexible Spending Accounts (FSAs) and Dependent Care Accounts (DCAs), which include:
- Permitting employers that offer a carryover for FSAs to carry over all unused amounts from 2020 to 2021 and from 2021 to 2022. This increases the limit from $550.
- Permitting employers to newly adopt a carryover for DCAs allowing employees to carry over all unused amounts from 2020 to 2021 and from 2021 to 2022.
- Permitting employers that offer a 2.5 month grace period to offer a 12-month grace period for unused benefits or contributions in FSAs and DCAs for plan years ending in 2020 or 2021.
- Permitting FSA participants who terminated from the plan, either during the 2020 or 2021 plan year, to spend down their unused balances for expenses incurred through the end of the plan year in which the termination occurred. This is available on DCAs, commonly known as a “spend down” provision.
- Permitting an increase of the age limit from dependents who have not yet attained age 13 to dependents who have not yet attained age 14 for remaining 2020 DCA balances only.
- Permitting a prospective change in election amounts for FSAs and DCAs for plan years ending in 2021 without a corresponding change-in-status event.
We welcome these changes as much needed updates to FSAs and DCAs. While temporary measures, they provide welcome updates to these accounts. Please consult your legal or benefit advisor for guidance on how adopting any of the above provisions will affect your plan.