IRS Relaxes Cafeteria Plan Mid-Year Change Rules Due to COVID-19 Pandemic

Typically, the rules surrounding Section 125 Cafeteria Plans prohibit changes to employee benefit plans throughout the year, except for employee life-changing events like divorce, marriage, birth of a child, and so forth. The impact from the coronavirus has brought about many questions regarding the flexibility of cafeteria plans due to the closings of so many daycares, businesses, and schools, as well as changes in dependent care and healthcare requirements. As a result, on May 12, the IRS relaxed the rules a bit for 2020 and issued two notices:  2020-29 and 2020-33 . These notices allow flexibility in making changes to some 2020 elections and extending grace periods for unused amounts for dependent care accounts and flexible spending accounts. See details below: 

  • Notice 2020-29 provides greater flexibility regarding mid-year elections under a cafeteria plan during calendar year 2020 related to employer-sponsored health coverage, health flexible spending arrangements (FSAs), and dependent care assistance programs by: (1) extending claims periods for taxpayers to apply unused amounts remaining in a health FSA or dependent care assistance program for expenses incurred for those benefits through December 31, 2020, (2) expanding the ability of taxpayers to make mid-year elections for health coverage, health FSAs, and dependent care assistance programs, and (3) applying earlier relief for high-deductible health plans to cover expenses related to COVID-19 and a temporary exemption for telehealth services retroactively 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. It also clarifies the ability of a health plan to reimburse individual insurance policy premium expenses incurred prior to the beginning of the plan year for coverage provided during the plan year.

For more information pertaining to the mid-year cafeteria plan changes, go to:  IRS.GOV .

Source: Internal Revenue Service