Tax Services Finding FSA Relief Within the CAA
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The Consolidated Appropriations Act of 2021 (CAA) contained important changes related to Paycheck Protection Program (PPP) loans, reformed the Employee Retention Tax Credit (ERTC), and includes updates for both health and dependent flexible spending accounts (FSAs). The relief provisions outlined below are optional for employers to adopt:

Full FSA carryovers

Any unspent amount in either FSA may be carried over from plan years ending in 2020 and 2021 into the subsequent plan years ending in 2021 and 2022, respectively.

Extended grace periods

For both FSAs, the plan may have a 12-month grace period for the plan years ending in 2020 and 2021.

Health FSA spend down

Similar to the spend down option available under the dependent care FSA, the health FSA may permit employees who terminate participation mid-year during calendar year 2020 or 2021 to continue to incur reimbursable claims for the remainder of the plan year in which participation ceased.

Dependent care FSA relief for children who reached age 13

Employees whose children reached age 13 during the last dependent care FSA plan year for which the enrollment period was on or before January 31, 2020 may continue to treat the child as eligible up to age 14 for such plan year.

FSA election change relief

Building on the prior IRS election change relief for 2020, the bill provides that the cafeteria plan may permit employees to change their FSA elections during plan years ending in 2021 without experiencing a permitted election change event.

Plan amendments may be retroactive

Employers wishing to offer any of these optional FSA relief provisions must amend the Section 125 cafeteria plan to incorporate the changes. The amendment may be retroactive as along as it is adopted no later than the last day of the first calendar year beginning after the end of the plan year in which the amendment is effective, and the plan is operated consistent with the terms of the amendment during the full retroactive period.

Help is available

P&N’s dedicated professionals are committed to understanding and applying this information to help our clients. Please contact us or connect with your P&N advisor to discuss your organization’s questions, concerns, and priorities.

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