2020 and 2021 FSA Changes

On December 27, 2020, President Trump signed the year-end spending bill.  In that bill included language that makes Flexible Spending Accounts (FSAs) temporarily more advantageous.  The temporary rule:

  • Allows plans to permit Health FSAs and Dependent Care FSAs to carryover unused benefits, up to the full annual amount, from 2020 to 2021, and from 2021 to 2022.
  • Allows FSA plans to permit a 12-month grace period for unused FSA benefits or contributions in Health FSAs and Dependent Care FSAs, for plan years ending in 2020 or 2021.
  • Temporarily extends the maximum age of eligible dependents for Dependent Care FSAs from under 13 to under 14.
  • Allows plans to permit a prospective change in election amounts for Health FSAs and Dependent Care FSAs for plan years ending in 2021.
  • Allows Health FSAs to pay for expenses for terminated employees that had unused benefits at the time of their termination.

As for next steps:

  1. Employers can choose to either permit the rollover of funds from one plan year to the next, or to provide a grace period of up to 12 months.  These options are available for both Health FSAs and Dependent Care FSAs for the 2020 and 2021 plan years.
  2. Employers can allow participants to make prospective changes to their elections:
    1. This means, for 2020 and 2021 plan years, election changes could be made without a qualifying event.
    1. Employers will need to determine if changes will be permitted on an ongoing basis.
  3. Employers will have roughly 12-months from their plan end date to update their plan documents to permit these changes, retroactive for the 2020 plan year.

More information can be found at: