IRS Expands Mid-Year Change Opportunities for FSA Plans

New guidance has been issued by the Internal Revenue Service (IRS) to permit mid-year change opportunities for FSA's in 2020.

FSA SPECIAL ENROLLMENT/CHANGE PERIOD WILL END ON SEPTEMBER 30, 2020!

As you may recall, new guidance was issued earlier this year by the Internal Revenue Service (IRS) to temporarily allow mid-year change opportunities for FSA participants who did not have a qualified family status change. The opportunity to make changes under the Special Enrollment Period will end on September 30, 2020. For more information on FSAs, please visit the Flexible Spending Accounts website.

New guidance has been issued by the Internal Revenue Service (IRS) to permit mid-year change opportunities for Flexible Spending Account (FSA) participants for the remainder of 2020. This guidance recognizes the difficulties employees face with meeting their original targeted election amounts due to COVID-19’s impact on health and dependent care provider availability. 

As a result, employees may elect to participate, increase, or decrease their 2020 election(s) under the Health Care and Dependent Care FSA without having a qualifying event. These election changes will be applied only to future contributions. If you are increasing your current election or enrolling for the first time, your new or increased election will only cover future expenses (i.e., expenses incurred after your enrollment or change in election). You will not be able to apply your increased election to prior expenses.

Additionally, the IRS is permitting cancellation of FSA enrollment for the 2020 plan year and refunds for prior periods only if no clams have been filed for 2020. The change to the IRS guidance is in response the difficulty many employees face in expending funds for the 2020 plan year and is temporary in nature. These provisions are not expected to continue into 2021. If you wish to enroll and/or change your current election, you must complete the FSA Special Election form (HR-135a) and return it to the Office of Benefit Services. Your election will be effective the first of the month following receipt of the completed form.
 

Example Scenarios: 

  1. Chris enrolled in a Health Care Flexible Spending Account (FSA) during Open Enrollment. She elected $700 for her annual contribution for a planned dental surgery. In May, Chris learned she would need to have a hip replacement in August and would like to contribute an additional $1,000 to her Health Care FSA. Due to the recent IRS updates allowing mid year FSA changes, Chris can increase her election by completing an FSA Special Election form (HR-135a) and returning it to the Office of Benefit Services. Chris should complete the form requesting a $1,700 annual contribution, reflecting the total amount she wants to contribute (her $700 initial election, plus the additional $1,000 she wishes to contribute).  

    Please note: Chris will continue to have access to her $700 initial election through out 2020, but will not have access to the additional $1,000 until the effective date of her new election (1st of the month following the date her form is received by the Office of Benefit Services).
  2. John enrolled in a Health Care Flexible Spending Account (FSA) during Open Enrollment. He elected $2,500 for his annual contribution for a planned surgery. Due to the COVID-19 pandemic, John’s doctor has cancelled his surgery and cannot predict when it will be rescheduled. John has not filed any claims against his Health Care FSA for the 2020 plan year. John can cancel his election retroactive to January 1, 2020, by completing the FSA Special Election form (HR-135a) and returning it to the Office of Benefits Services. The payroll contributions will be returned to John in his next paycheck and any applicable taxes will be applied.
  3. Terri enrolled in a Health Care Flexible Spending Account (FSA) during Open Enrollment. She elected $2,000 for her annual contribution for various medical expenses. In January, Terri submitted a claim for reimbursement in the amount of $1,500, but now, due to the COVID-19 pandemic many of Terri’s scheduled appointments for the remainder of the year have been cancelled. Terri can reduce her annual contribution to a total of $1,500 (the amount already reimbursed for 2020 expenses) by completing the FSA Special Election form (HR-135a) and returning it to the Office of Benefit Services. As of June, 2020, Terri has contributed $1,200 through pre-tax payroll deductions. Terri can choose to reduce her annual election to $1,500, but cannot have contributions below that amount.  If she chooses to reduce her annual election to $1,500 in July, she will have $75 in FSA contributions made each month for the period of September – December.

  4. Brianna has two children. Her youngest child is cared for at a local daycare center near her home while she is working. Brianna’s older child is school-aged and typically attends summer camp. Due to the COVID-19 pandemic, camp has been cancelled. Brianna had enrolled in a Dependent Care Flexible Spending Account (FSA) during Open Enrollment for $5,000. As of May 31, 2020, Brianna has contributed $2,000. She does not want to cancel the account so she can continue to access the funds for her child in daycare, but now expects to only use $2,500. 

    Brianna can elect to reduce her contributions to her Dependent Care FSA during this Special Election Period by completing the FSA Special Election form (HR-135a) and returning it to the Office of Benefits Services. Brianna should complete the form requesting a $2,500 annual contribution, reflecting the total amount she wants to contribute. She will have access for contributed funds for services between January 1 and December 31, 2020.

  5. Dan has one child who attends summer camp though a program. Due to the COVID-19 pandemic, this summer camp has been cancelled. During Open Enrollment, Dan elected to contribute $1,500 to his a Dependent Care Flexible Spending Account (FSA) for 2020. He has not submitted any dependent care claims for this year. Dan may cancel his enrollment in his Dependent Care FSA by completing the FSA Special Election form (HR-135a) and returning it to the Office of Benefits Services. The deducted contributions will be returned to Dan in his next paycheck and any applicable taxes will be applied.

    Please note: If you are a 10 month employee and you cancel your Dependent Care FSA by June 30th, you will receive your refund in July.