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IRS Gives Break on Flexible Spending Plans

 

The IRS has granted relief for 125 cafeteria plans, health flexible spending arrangements and dependent care assistance programs.

In Notice 2020-29, the IRS has:

  • Extended claims periods for taxpayers to apply unused amounts remaining in a health FSA or dependent care assistance program for expenses incurred through December 31, 2020.
  • Expanded the ability of taxpayers to make mid-year elections for health coverage, health FSAs, and dependent care assistance programs, allowing them to respond to changes in needs as a result of the COVID-19 pandemic.
  • Applied earlier relief for high deductible health plans to cover expenses related to COVID-19, and a temporary exemption for telehealth services retroactive to January 1, 2020.

Notice 2020-33 increases the limit for unused health FSA carryover amounts from $500 to a maximum of $550, as adjusted annually for inflation.

The drawbacks? The rules are very specific, and the notices go into great detail on how exactly the new rules work. Fortunately, Notice 2020-29 contains examples so those who have elected the relevant plans can see more clearly how to take advantage of the new rules. A summary of the rules is available in the IRS Newsroom.

 
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Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided "as is," with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.
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