The Consolidated Appropriations Act 2021, passed by Congress and signed by President Trump, provides in part for significant changes to health FSA and DCAP plans for 2021 and 2022. The bill allows – but does not require – employers to amend their plans to permit the following:
- Health FSA and DCAP Carryover: Allows health FSA and DCAP plans to carry over ALL unused amounts from the 2020 plan year to 2021 and from 2021 to 2022
- Extended grace period: Permits a 12-month grace period for unused benefits or contributions in health FSAs and DCAP accounts for plan years ending in 2020 or 2021
- Health FSA spend down: Allows health FSA participants who terminate during the 2020 or 2021 plan year to spend down any unused balance through the end of the plan year in which the termination occurred; this includes any grace period
- Updated DCAP age limits: For the 2020 plan year, extends the maximum age of eligible dependents from 12 to 13 (not yet reached 14th birthday) for dependent care FSAs; the increased age limit also applies for unused amounts carried over from the 2020 plan year to 2021
- Election amount changes: Permits participants to make changes to election amounts for health and dependent care FSAs for plan years ending in 2021 without a corresponding qualifying life event
It’s important to note that the above changes may effect HSA eligibility.
To put any or all of these changes into effect, sponsoring employers must amend their plans. The deadline to do so is the last day of the first calendar year beginning after the end of the plan year in which the amendment was effective. In other words, to adopt the changes for a plan year ending at any point between January 1, 2021, and December 31, 2021, the employer must amend their plan by December 31, 2022.
*this article reposted from DataPath.
Please note that while we want you to be aware of the provisions in the law and have a chance to consider them, the law is quite voluminous and additional IRS guidance may be forthcoming. In addition, Corporate Coverage TPA cannot provide legal or tax advice regarding this law or its requirements. For those questions, you should consult your own counsel.