Flexible Spending Account Participants Have Increased Flexibility to Make Changes in 2021

The Consolidated Appropriations Act 2021 recently passed by Congress impacts FSAs

The Consolidated Appropriations Act 2021 recently passed by Congress provides health care and dependent care FSA) Participants the ability to change elections on a prospective basis. Employees who have balances remaining from 2020 also have increased carryover amounts. Below is a summary of the changes provided by the Act and how it impacts the FCPS health and dependent care flexible spending accounts.

Please note: This information based on the guidance received so far. As more information is provided by the IRS, there may be additional adjustments to the plan. FCPS is working very closely with Optum, our FSA plan administrator, on the ongoing administration of these changes. Thank you for your patience.

Changes Impacting both the Health Care and Dependent Care FSAs: 

  • Carryover Extension: All unused funds from the plan year ending December 31, 2020, will be carried over for use in 2021. No action is required by the employee to affect this carryover.
  • Election Amount Changes: If you enrolled in the health care or dependent care FSA for 2021 and would like to (increase or decrease your contributions, you may do so on a prospective basis. Changes to your annual election must be for $250 or more. 

    Please note: All changes must be made on a prospective basis and will be effective the first of the month following the receipt of your form.
     

Changes impacting only the Dependent Care FSAs:

  • Maximum Dependent Age Increased for Calendar Year 2020 Expenses Only. Current IRS provisions allow for reimbursement of dependent day care expenses through age 13. The recent bill passed by Congress allows participants to claim expenses for children who turned age 14 in 2020.

    If your dependent child reached age 14 in 2020 and you incurred daycare expenses for that child in 2020, you can submit for reimbursement of those services if you had a dependent care FSA in 2020. 

    Please note: The Act did not explicitly extend the age limit to age 14 on a permanent basis, however, we are awaiting more guidance on this provision.

Any carryover funds that you have from 2020 will automatically be reflected in your 2021 account balance. If these changes will affect the election you made for plan year 2021, you may request a change to your annual election(s), provided that the amount of the change is $250 or more. 

To make a change to your FSA, you must complete form FSA Special Election form (HR-135a) and return it to the Office of Benefit Services (see the form for submission instructions).  Any changes to your election will be effective the first of the month following OBS’ receipt of your form.

 

Example Scenarios: 

  1. Chris enrolled in a Health Care Flexible Spending Account (FSA) during Open Enrollment in the fall of 2020. She elected $1,000 for her annual contribution for planned expenses in 2021.  Chris has $700 in unused funds from 2020 that will now rollover to her 2021 account.  Chris knows that she will not have expenses that exceed $1,000 in 2021.  Can Chris reduce her election to $300 for 2021? 

    Yes, as long as the decrease is on a prospective basis. Chris’ 2021 election of $1,000 means that $100 would be deducted from her pay each month (FSA deductions are taken on a 10 month basis). Therefore, Chris must request a change to her election no later than March 31, 2021, to cap her 2021 contribution at $300.

    Chris can decrease 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 $300 annual contribution, reflecting the total amount she wants to contribute in 2021. The change will be effective the first of the month following receipt of the form by the Office of Benefit Services. 

    Chris will have access to the $700 rollover funds and the $300 in 2021 for the entire calendar year.

     
  2. John forgot to enroll in the Health Care and Dependent Care FSA during Open Enrollment. Can he enroll now? 

    At this time, John cannot enroll in the FSA plan unless he has a qualifying event (changes must be requested within 30 days of the event). As with all legislative changes, additional guidance is expected to be issued over the next several weeks. Should the IRS issue guidance that expands the ability of employees to enroll in the FSA plan mid-year (without a qualifying event) this information will be communicated  to all employees.

     
  3. Terri did not enroll in a Health Care Flexible Spending Account (FSA) during Open Enrollment, because she had $550 to carryover from 2020 and she didn’t think she would need any funds in excess of her rollover. Terri has just learned that she needs to have dental work done which will have an out-of-pocket cost of about $1,200. Can Terri add money to her account?  

    Yes, Terri can complete an FSA Special Election form (HR-135a) o add funds to her Health Care FSA account. The election will be effective the first of the month following receipt of the form by the Office of Benefit Services. Because changes to FSA elections can be made only on a prospective (i.e., future dated basis) it is important to ensure election changes are submitted in advance of incurring the expense, as funds cannot be accessed for services performed prior to the effective date of the change in election.

     
  4. Brianna has $2,000 left in her 2020 Dependent Care FSA due to her daycare provider being closed for most of last year. Is there anything that can be done so that she doesn’t forfeit those funds?

    Yes, under the recent allowable changes Brianna can rollover those funds for use in 2021 for her daycare expenses. If Brianna elected a Dependent Care FSA for 2021, she should review her election in light of the funds being rolled over. If the total of her 2020 rollover amount and  her current election is expected to exceed her daycare expenses for 2021, Brianna can request to reduce the election she made for 2021. However, as with the preceding examples, this change can only be made on a prospective basis. Careful planning for the requested effective date of any change is needed to ensure Brianna doesn’t have excess contributions for 2021. 

     
  5. Tom cancelled his participation in the dependent care FSA in March of 2020 because his daycare closed. He still has funds in his dependent care FSA account that he was not able to use in 2020. His daycare has now opened, can he use those funds to pay for daycare expenses in 2021?

    Yes, his remaining funds from 2020 will rollover to 2021, and he can use those funds to pay for daycare in 2021.