The IRS issued Notice 2021-15 providing operational guidance for recent permitted FSA changes. This Notice clarifies the temporary, special rules for health flexible spending account plans and dependent care assistance programs included in the Taxpayer Certainty and Disaster Relief Act (the “Act”) passed at the end of 2020.
The Act allowed the following temporary FSA design changes:
- The carryover of all unused FSA amounts relating to the 2020 and 2021 plan years;
- An extension of the period for incurring claims for plan years ending in 2020 and 2021;
- The allowance of post-termination reimbursement from health FSAs.
- A special carryover and claims period for dependents turning age 13 during the 2020 plan year; and
- Limited mid-year election changes for FSAs ending in 2021.
The new Notice 2021-15 clarifies that the Act’s permissive changes apply to dependent care assistance plans, not just dependent care FSAs. It also provides additional time for pans to make amendments to adopt the reimbursement of over-the-counter medicines and drugs without a prescription and the reimbursement of the cost of menstrual care products.
The Notice includes a new provision that was not part of the Act. Notice 2021-15 allows employees to make mid-year changes to health coverage, health FSAs and dependent care FSAs for any reason. An employer may allow an employee to for 2021 to revoke an existing health plan election and make a new election or revoke an existing election with proof of other coverage.
All changes in the Notice, like the changes set forth in the Act, are permitted but not required. Employers will have to decide if their plans will adopt some, none or all of the changes.
