On Monday, December 21, both the House of Representatives and the Senate passed the Consolidated Appropriations Act of 2021. This bill is awaiting signature from President Trump.
The legislation allows employers to amend their plan, similar to IRS Notice 2020-29 released earlier this year. Included in the legislation are provisions relating to Health Care and Dependent Daycare FSA plans. Below are the provisions outlined in the new bill.
- Carryover of unused funds from plan year ending in 2020 to plan year ending in 2021.
- Carryover of unused funds from plan year ending in 2021 to plan year ending in 2022.
- Grace period for plan year ending in 2020 or 2021 may be extended to 12 months after the end of the plan year.
^Each of the above provisions would be applicable to both health and dependent care FSAs.
- Provide employees who cease participation in a Health FSA during calendar 2020 or 2021 the opportunity to receive reimbursements from unused benefits or contributions through the end of the plan year in which such participation ceased (including grace period, if applicable). Please note: at this point, it is not clear whether this permits reimbursement of expenses incurred after termination or if it's simply an extended run-out period.
- Increase the maximum age (by one year) for dependent care beneficiaries who aged out during the pandemic.
- Prospective modification of election amount for health and dependent care FSAs (for plan years ending in 2021).