FSA and Section 125 Changes

On May 12, 2020, the IRS released Notice 2020-29 and Notice 2020-33

Notice 2020-29 provides temporary flexibility for mid-year election changes under a Section 125 cafeteria plan during the 2020 calendar year, allowing employers to respond to changes in employees’ needs as a result of the COVID-19 pandemic.  The major changes allowed are:

  1. Make a new election for employer-sponsored health coverage on a prospective basis if you initially declined coverage
  2. Make changes to your health coverage (for example, change from individual to family coverage, or change from one type of plan to another)
  3. Revoke coverage on a prospective basis, if you confirm in writing that you’ll get coverage elsewhere
  4. Revoke an election, make a new election, or decrease or increase an existing election regarding a healthcare FSA on a prospective basis
  5. Revoke an election, make a new election, or decrease or increase an existing election regarding a dependent care account on a prospective basis.

Notice 2020-33 modifies notice 2013-71 to increase the $500 carryover amount for a plan year to an amount equal to 20 percent of the maximum health FSA salary reduction contribution for that plan year.  This increases the 2020 maximum carryover amount from $500 to $550, which reflects 20% of the current $2,750 salary reduction limit.  An employer that wishes to allow this increased carryover amount, must amend their current plan to reflect the change.