The Consolidated Appropriations Act, 2021 was approved by Congress on December 21, 2020, and signed into law by President Donald Trump on December 27, 2020. It includes the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (Disaster Relief Act). The following is a summary of the important provisions found in section 214, “Temporary Special Rules for Health and Dependent Care Flexible Spending Arrangements”:
Carryover from 2020 and 2021 Plan Year
Employers are allowed to amend Health and Dependent Care FSAs to allow participants to carry over to the plan year ending in 2021 any unused amounts that would have expired at the end of a plan year ending in 2020. Similarly, any unused amounts that would have expired at the end of a plan year ending in 2021 may be carried over to the plan year ending in 2022.
Extension of Grace Periods
Employers are allowed to amend their FSAs to provide a grace period of up to 12 months after the end of a plan year ending in 2020 or 2021. These rules apply equally to health FSAs and dependent care FSAs and are not subject to dollar limitations.
Post-Termination Reimbursements from Health FSAs
A health FSA may be amended to allow employees who cease participating in the plan during 2020 or 2021 (e.g., as a result of termination of employment) to continue to incur expenses and receive reimbursements from any unused contribution amounts through the end of the plan year in which the participation ended, including any grace period or extended grace period. This is similar to the rules applicable to dependent care flexible spending arrangements.
Increase of Maximum Age of Eligible Dependent under a Dependent Care FSA
A temporary rule extends the maximum age of eligible dependents for purposes of determining eligible dependent care FSA expenses from under age 13 to under age 14. The rule applies to the plan year for which open enrollment ended before January 31, 2020, including any unused amounts from that plan year that may be available in the following plan year as a result of a plan’s rollover or grace period.
Temporary Relief of Irrevocability rule for Health and Dependent Care FSAs
Employers may permit employees to modify prospectively the amount of contributions to health and dependent care FSAs, without regard to whether the participant satisfies the normal requirements for mid-year election changes.
Employers have until the last day of the first calendar year beginning after the end of the plan year to adopt plan amendments to reflect the changes in the Disaster Relief Act. The amendments may be effective retroactively if the plan is operated consistently with the terms of the amendment beginning on the effective date of the amendment.