While care has been taken to produce this document, Newfront does not warrant, represent or guarantee the completeness, accuracy, adequacy, or fitness with respect to the information contained in this document. You may still contribute the maximum for both the HSA and a limited health FSA. Employees dont pay taxes on the money they contribute to their FSA account, saving them hundreds of dollars every year. For over 30 years, our goal has been to provide meaningful solutions for todays challenges while creating opportunities for the future. "In practice, employers who rely on some forfeitures to help defray the cost of the plan may see less forfeit money if terminated employees can submit claims throughout the plan year," she noted. Extend to 12 months the grace period for spending unused FSA funds for plan years ending in 2020 or 2021. What does it mean to have a fund on watch? Please confirm that you want to proceed with deleting bookmark. For example, the new rules clarify that: An employer must still choose between offering a carryforward or grace period. The Internal Revenue Service has issued Notice 2021-15 clarifying the flexible spending account (FSA) provisions of the Consolidated Appropriations Act, 2021 (CAA). Simply stated, an employee can be reimbursed for qualified dependent care expenses during the plan year, even after termination, if they have a remaining balance in their account upon termination of employment. Unlike an HSA, youre not required to have health coverage to be eligible for a health FSA. management, More for accounting Notice 2021-15 also clarifies that employers may extend the dependent care FSA claims period for a dependent who "ages out" by turning 13 years old during the COVID-19 public health emergency. (They must have underspent their account.) NOTE: While the new rules are similar to the existing rules for health FSAs, they can now be applied to dependent care FSAs, the dollar limits applicable under the previous rules do not apply. Section 105(a) provides that "amounts received by an employee through accident or health insurance for personal injuries or sickness shall be included in gross income to the extent such amounts (1) are attributable to contributions by the employer which were not includible in thegross income of the employee, or (2) are paid by the employer." The issues addressed may have legal, financial, and health implications, and we recommend you speak to your legal, financial, and health advisors before acting on any of the information provided. Your employer may also make contributions to your FSA account. An FSA experience gain (sometimes referred to as forfeitures in the use-or-lose rule in paragraph (c) in this section) with respect to a plan year (plus any grace period following the end of a plan year described in paragraph (e) in 1.125-1), equals the amount of the employer contributions, including salary reduction contributions, and after-tax employee contributions to the FSA minus the FSAs total claims reimbursements for the year. Money left unused in your FSA goes to your employer after you quit or lose your job unless you are eligible for and choose COBRA continuation coverage of your FSA. Sentinel Benefits & Financial Group is the brand name for the Sentinel family of companies which includes Sentinel Benefits Group, Inc., Sentinel Pension Advisors, Inc., Sentinel Insurance Agency, Inc., and Sentinel Securities, Inc. Sentinel Benefits & Financial Group and its affiliates do not provide tax advice. Copyright 2021 by Ballard Spahr LLP. See paragraph (k)(3) in this section for specific exceptions. For a calendar year plan, where changes became effective in 2020, amendments must be adopted by December 31, 2021. If the participant dies during the plan year and has a positive balance, any eligible dependents can continue to submit valid medical claims for services prior to participants death and should be offered COBRA through remainder of the plan year. When do our employees become eligible to participate in the retirement plan? Whattriggers the obligation to offer COBRA coverage? Those that do not may add them. "The IRS was very responsive to the benefits community in providing this guidance in a timely fashion," said William Sweetnam, legislative and technical director at the Employers Council on Flexible Compensation, which represents sponsors of account-based benefits plans. No. Please log in as a SHRM member. Allow employees who stopped participating in a health FSA plan during 2020 or 2021 to continue to be reimbursed from unused balances through the end of the plan year in which their participation ended, including any extended grace periods. Our mission is to make employee benefits easy and affordable. claims incurred during a grace period provided under the plan, if the employee is entitled to submit such expenses. The new rules generally provide ease and comfort to employers that are considering implementation of these changes and offer guidance on some other issues as well. FSAs are set up by an employer in a cafeteria plan, where your employer provides certain benefits on a pretax basis. The account is funded with paycheck deductions that are taken before any taxes are calculated. Dependent Care FSAs - If allowed by the provisions of the Plan Document, a terminated employee is entitled to be reimbursed for Dependent Care claims incurred at any time during the plan year in which they separate service, up to the amounts credited to their account. That is very unusual, and it would need to be coordinated with the TPA, but it could be done. The new guidance will be welcomed by employers contemplating temporary changes to their FSAs. Refunding the employee for the remaining unspent amount isnotpermitted. In this case, your allocated expenses equal $150.00 ($50.00 per day for the three days worked). Examples of failures resulting in section 125 not applying to a plan include the following. Flexible Spending Account Basics Yes. } All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. collaboration. The health FSA was overspent since the remaining annual limit of $200 is less than the amount of COBRA premiums ($600) that would be due for July through December. It is permissible to allocate these amounts based on the different coverage levels of employees under the FSA. The other letter explains that the use-or-lose rule generally restricts the ability to carry over unused amounts remaining in a health FSA at the end of a plan year to a subsequent year; these amounts cannot be returned to the employee and must be forfeited following any applicable grace period or claim run-out period. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have. However, there are two options available to you to address unreimbursed funds remaining in the companys health FSA at the time of your termination: Question Part II: Can we permit any exceptions or refunds? Generally, to be eligible for an FSA, you just have to be an employee of an employer who offers an FSA. Although the changes in contributions must be prospective, amounts contributed can be applied retroactively to reimburse for expenses incurred earlier in the plan year. September 8, 2021 There are only three types of expenses that a health Flexible Spending Account (FSA) can reimburse after an employee's coverage terminates: June 2021 - COVID-19 PPE is now HSA, FSA eligible, March 2023 HSA - setting up notifications, Electing Plan Changes for the American Rescue Plan Act, Electing Plan Changes for Consolidated Appropriations Act, Viewing Plan and Participant Transactions, Simple Guide to your Retirement Services Invoice, How to Update Employee Contact Information and/or Security Questions, Searching for/Updating Employee Account Information, Employee Online Account Access Assistance, Lost Participant Tracking and Maintenance, How The SECURE 2.0 Act Will Affect Your Retirement Plan in 2023, EFAST2 Credentials & Electronic 5500 Filing, How to EFILE Form 5500 (5500-SF) - FT William, How to EFILE Form 5500 (5500-SF) - Sentinel Web Client, Sponsor Approval of Distribution Requests, Viewing/Printing a Loan Amortization Schedule, Mandatory Distributions (Automatic Rollover IRA's), Non-Discrimination Testing & Corrective Distributions, Qualified Birth or Adoption Distributions, Uploading the Annual Census Verification & Annual Employer Package, IRS Plan Document Restatement for Cycle 3, Annual Participant Notice Access and Delivery Requirements, Mergers, Acquisitions & Other Company Transactions, Fee and Investment Disclosure Resource Center, SECURE ACT: Long-Term Part-Time Employees (LTPTs). Zinter raised another point regarding employers that might adopt one of the FSA carryover provisions without also allowing employees to adjust their FSA contribution elections. Experience gains may not be used as contributions directly or indirectly to any deferred compensation benefit plan. The 5,593-page bill included annual funding for the Federal government and many other provisions but also contains several COVID-19 relief provisions. You, your spouse, or dependents are eligible for using the FSA for qualifying expenses. Under IRS Thus, a plan is also permitted to provide a deadline on or after the end of the plan year (or grace period) for submitting a claim for reimbursement for the plan year. Deemed distributions from HSAs. Terminated Employees and Flexible Spending Accounts. Member FINRA & SIPC. Publication 969 (2022), Health Savings Accounts and Other Tax-Favored If the healthcare FSA isnt offered through a cafeteria plan, its subject to Internal Revenue Code Section 105, which allows employers to establish a written plan to reimburse medical expenses for employees. A COBRA premium may not take into account any unused amount from prior contributions. Shop the Optum Store for even more savings. discount pricing. Suite. The account is funded with paycheck deductions that are taken before any taxes are calculated. She advised FSA plan sponsors to speak with their third-party administrator "to understand how the changes can be administratively supported.". It's No Stretch to Say That IRS Guidance Makes FSAs More Flexible The employee may also have COBRA rights. Health FSAs are group health plans, thus subject to the federalCOBRA. The maximum dollar limits for FSAs will apply to the amount contributed for a year. The IRS is making big changes to FSAs and HSAs. Here's what to know. Even if you're able to continue your FSA with COBRA, your FSA money can't be used to pay for monthly COBRA health insurance premiums. (5)Amendments to cafeteria plan. COVID-19 Package: Summary of Temporary FSA Relief , coinsurance , and some drugs. Who is the Third Party Administrator (TPA)? } Allowing employees to waive any leftover balance. Balance in an HSA Death of HSA Holder Spouse is the designated beneficiary. However, COVID-19-related relief allows employers to amend their plans to permit carryovers of unused health FSA amounts from the 2020 and 2021 plan years, extend the permissible period for incurring claims for plan years ending in 2020 and 2021, and allow certain post-termination reimbursements from health FSAs (see our Checkpointarticle). What options does an employer have with unused FSA funds?]. The 2021 Act FSA temporary rules expand on prior IRS FSA relief granted in 2020. Newfront is transforming the delivery of risk management, employee experience, insurance, and retirement solutions by building the modern insurance platform. 2021 The CIP Group. Any unused balance is not refunded to you. Note that if the plan offers the carryover provision, up to $500 of the unused amount may carry over to the subsequent plan year for the COBRA maximum coverage period (18 months from the termination of employment). www.ballardspahr.com You or your spouse must work or be looking for work for the child care costs to be eligible. Here is what employers need to know after first covering some necessary background information. PDF Dependent Care Flexible Spending Account Frequently Asked - WageWorks 2022 Health FSA Contribution Cap Rises to $2,850, The IRS notice offers particularly useful guidance on the two-year expansion of the carry forward rules to apply to all unused contributions and the two-year expansion of the grace period to allow the grace period to last 12 months in duration. 2021 FSA Contribution Cap Stays at $2,750, Other Limits Tick Up - SHRM The maximum carryover amount . What are the requirements for having a dependent care FSA? Employers may make choices about the mid-year election, for example, selecting a particular period for elections or limiting the elections that can be made. Financial planning and investment advice are offered through Sentinel Pension Advisors, Inc., an SEC registered investment advisor. A workplace run by AI is not a futuristic concept. PURPOSE AND OVERVIEW 1 ADDITIONAL RELIEF FOR CORONAVIRUS DISEASE (COVID-19) UNDER 125 CAFETERIA PLANS Notice 2021-15 I. As a practical matter, employers almost always apply experience gains from forfeitures to the health FSAs plan administrative expenses. ACA Preventive Health Services Mandate to Remain in Effect During Braidwood Appeal, CMS Issues Guidance on Elimination of MHPAEA Opt-Out Elections by Self-Insured Non-Federal Governmental Health Plans, Measuring the ROI of ONESOURCE Statutory Reporting: 2023 Forrester Consulting Study, Understanding the Extension of ACA Enhanced Premium Tax Credit (PTC), For So, our approach is simple, and our goal is to provide you clarity with solutions that are simple to implement, simple to manage, and simple to use. The plan allows employees to revoke or change elections by March 1, 2021. If there are claims on the account with dates of service after the term date, these funds have to be repaid to the plan since the claims are not eligible for reimbursement. Amounts that are unused may result in some adjustments for individuals in their individual tax return for reporting dependent care assistance (Form 2441). If an employees termination in a health FSA results from a qualifying event under COBRA, such as a termination of employment, the employee would have COBRA rights even if the plan allows the employee to exhaust his or her account through expenses incurred after the event. The What is a Controlled Group (Code Section 414(b) & (c))? Participant Email Templates (for Plan Sponsor use), Retirement Plan Solutions - For Financial Professionals. The contribution limit is $10,500 in 2021 for any status except married filing separately, which has a limit of $5,250. employees can contribute $2,750 to a health FSA, employers the option to raise these limits for 2021, blur the lines between a grace period and carryover, All of these options add administrative burden to employers, Stimulus Act Raises Dependent Care FSA Limits, Adjusts Tax Credit, IRS Guidance Clarifies Taxability of Dependent Care FSAs Through 2022, 2022 Health FSA Contribution Cap Rises to $2,850, New OSHA Guidance Clarifies Return-to-Work Expectations, Trump Suspends New H-1B Visas Through 2020, Faking COVID-19 Illness Can Have Serious Consequences, Employers Eye Benefits to Support LGBTQ+ Employees, Thinking of Eliminating an Employee Benefit? One of the most fundamental of these limitations is that all FSA elections are subject to the use-it-or-lose-it rule. Any run-out period must be provided on a uniform and consistent basis with respect to all participants. What reports and requests can I expect to receive? Regulations governing pretax plans are often open to interpretation and should be reviewed with your legal or tax advisor before making any decisions regarding your plan. releases, Your Any amendment to the cafeteria plan must be in writing. Try our solution finder tool for a tailored set