IRS Notice 2021-15 Additional Relief for Coronavirus Disease (COVID-19) Under Section 125 Cafeteria Plans

IR-2021-40, February 18, 2021

WASHINGTON — The Internal Revenue Service today provided greater flexibility, due to the pandemic, to employee benefit plans offering health flexible spending arrangements (FSAs) or dependent care assistance programs. Under the COVID-related Taxpayer Certainty and Disaster Tax Relief Act of 2020, these plans now have additional discretion in 2021 and 2022 to adjust their programs to help employees better meet the unanticipated consequences of the public health emergency.

Notice 2021-15 PDF responds to unanticipated changes in the availability of certain medical care and dependent care. As a result of COVID-19, participating employees are more likely to have unused health FSA amounts or dependent care assistance program amounts at the end of 2020 and 2021. Generally, under these plans, an employer allows its employees to set aside a certain amount of pre-tax wages to pay for medical care and dependent care expenses. Amounts spent by the employee are then reimbursed from their designated health FSAs or dependent care assistance programs.

Notice 2021-15 provides flexibility for employers in the following areas related to health FSAs and dependent care assistance programs:

Provides flexibility for the carryover of unused amounts from the 2020 and 2021 plan years;

Provides flexibility to extend the permissible period for incurring claims for plan years ending in 2020 and 2021;

Provides flexibility to adopt a special rule regarding post-termination reimbursements from health FSAs;

Provides flexibility for a special claims period and carryover rule for dependent care assistance programs when a dependent “ages out” during the COVID-19 public health emergency; and

Allows certain mid-year election changes for health FSAs and dependent care assistance programs for plan years ending in 2021.

Prior guidance provided flexibility to employers with cafeteria plans through the end of calendar year 2020, during which employers could permit employees to apply unused health FSA amounts and dependent care assistance program amounts to pay for or reimburse medical care or dependent care expenses. The Taxpayer Certainty and Disaster Tax Relief Act of 2020, signed into law on December 27, 2020, provides similar flexibility for these arrangements in 2021 and 2022.

Millions of employees have access to health FSAs and dependent care assistance programs, sponsored by employers under “cafeteria plans.” The decision to adjust these employee benefit programs is at the discretion of the employer that sponsors the plan.

The amounts properly spent are not subject to federal income tax. Typically, account funds that are not spent by the employee within the plan year, subject to limited grace periods or certain carryover amounts, are forfeited. In accordance with the Taxpayer Certainty and Disaster Tax Relief Act of 2020, Notice 2021-15 gives employers the option to amend their plans to provide greater flexibility for employees to elect and use these programs during the pandemic without risking the forfeiture of the amounts they have set aside.

The IRS has more COVID-19-related information for plan participants, employers and others who administer plans at IRS.gov.

Source:  https://www.irs.gov/newsroom/new-law-provides-additional-flexibility-for-health-fsas-and-dependent-care-assistance-programs

Section 125 COVID-19 amendment

The sooner an employer amends a Section 125 plan document for these changes, the sooner employees can make mid-year elections to their plan options. Fortunately, adding the COVID-19 amendment doesn’t have to be a difficult or expensive task.

$99 one-time fee ordered online

$129 one-time fee ordered via fax or email

As we navigate the COVID-19 pandemic together, employers have asked for relief under current Section 125 cafeteria plan rules that will permit changes to help employees with the changes stay-at-home mandates, school closures, and the disease itself may bring into their lives.

The Core COVID-19 plan amendment makes it simple and affordable for employers to apply the relief available through IRS Notice 2020-29. Adding this amendment to an existing Section 125 plan document means employees can make mid-year elections to change health insurance options and FSA contributions that better fit their lives for the duration of the emergency.

And, for the first time ever, Core Documents is offering a plan amendment to employers whose current plan document was made by us and to those whose were not.

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No annual fee — Core Documents does not require an annual renewal fee to maintain your plan document package. A plan document only needs to be updated when there are changes in the plan or in the law that make it necessary. We will notify you when there are sufficient changes in the Code to require amending and restating your Plan and ask that you keep us informed when there is a change to your plan.  You can amend and update your plan document anytime, at a discounted fee and only when necessary, which is the most cost-effective way to maintain it.

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Refund Policy: Goods and services provided by Core Documents, Inc. are non-refundable upon receipt. Orders canceled prior to shipping are subject to a fee to cover the cost of goods and services provided during the review, draft, and preparation of your order.

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