Changes to Flexible Spending Accounts
Flexible Spending Account Rule Changes
At the end of December, 2020, the "Consolidated Appropriations Act of 2021" was passed, and it included important changes to the rules governing Health Care and Dependent Care Flexible Spending Accounts. The changes affect plan years 2020 and 2021. The provisions are optional for employers/plan sponsors to adopt. As noted in a previous edition of InBrief, here are more details on the FSA plan changes and how they impact participants:
- Mid-year Election Changes Permitted- Effective immediately, an employee may prospectively enroll, increase, decrease or stop contributions without needing to have a qualifying event (birth, marriage, etc.). A decrease in contributions cannot be less than what has already been deducted from an employee’s paycheck and/or reimbursed under the plan. An increase in contributions will be allowed up to the plan year maximum of $2750 for healthcare FSA and $5000 for Daycare FSA. This is a one-time opportunity to make changes to one’s FSA enrollment. This change must be made before October 15, 2021. Please see the WorkDay Job Aide regarding how to update your Flexible Spending account election.
- Expanded Grace Period for the Health and Daycare Flexible Spending Accounts- The grace period, which is the date by which employees must spend down their healthcare and dependent care flexible spending account money is currently 3-15-21 for the 2020 plan year. Under these new provisions, the grace period will be changed to 12-31-21 for plan year 2020, and to 12-31-22 for plan year 2021. The claims submission deadline will be April 30 of the year after the grace period ends (for example, if the grace period ends 12-31-21, one has until 4-30-22 to submit expenses incurred by 12-31-21 for the 2020 plan year and the same applies to the 2021 Plan year. The 2021 Plan year grace period ends 12/31/22, and the submission deadline for plan year 2021, will be 4/30/23.
- Increase of Maximum Age of Dependents-In the past, the Dependent Care FSA applied to dependent children age 12 and under. Child care expenses could not be reimbursed once the child attained age 13. Under the new rules, child care expenses can be reimbursed for dependent children age 13 and under in 2020. So, if you participated in the Dependent Care FSA in 2020, you still have unused contributions, and your child turned age 13 during the year, you can now submit claims for expenses incurred after age 13, up to age 14. The deadline for submitting these claims is April 30, 2022.
The same will be true for 2021. Dependent care expenses can be incurred for dependent children until they turn age 14 in 2021. The deadline to submit these claims is April 30, 2023.