Your workplace flexible spending account (FSA) may no longer be strictly “use it or lose it“–with the latest relief bill you can roll about funds. In other words, If you haven’t issued your FSA in 2020, you may be able to use those funds in 2021. Here’s What You Should Know.
Changes to your FSA
Many employees have FSAs through their employer, which allows them to use pre-tax dollars to pay for non-refundable health-related or dependent health care costs, such as glasses, over-the-counter medicines or trips to the dentist (for more information on qualified expenses from 2021, read this Lifehacker message ).
T.he disadvantage with FSAs (unlike HSAs) is them “Use it or lose it” accounts –the money you have deposited to spend at the end of the company’s fiscal year – with two exceptions, as some employers allow one of two options:
- Up to $ 550 of the fund can be carried over to next year to pay for the previous year’s claims.
- A grace period of 2.5 months to start the new year, to pay the claims of the previous year.
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YOUunder the Taxpayer Certainty and Disaster Tax Relief Act of 2020, these rules have changed (rules that also apply to dependent care FSAs, which are similar plans that benefit an employee’s dependents). According to the legal news site, JD SupraFSA holders can take advantage of these changes:
- Extended transfer and deferral periods for 2021 and 2022. Any balance up to $ 5,000 (for families) at the end of 2020 can be carried over to 2021 and any balance at the end of 2021 can be carried over to 2022. Similarly, grace periods can be extended from the original 2.5 months until the end of the full calendar year (so you have all of 2021 to use your 2020 funds).
- Elections for FSA accounts are no longer irrevocable during the 2021 plan year. Elections may be prospectively changed by employers during the course of 2021 for any reason.
- Discontinued participants now have access to their accounts until the end of the Plan year in which their participation ends, plus any grace period. (It’s unclear, however, if this applies only to unused contributions from the termination date or to the full amount chosen – this requires clarity from the IRS).
- For the calendar year 2020, the maximum age will be increased from 13 years to 14 years, for a plan year for which the regular enrollment period ended on or before 31 January 2020. This means that an employee can be covered for the costs of care for his 14 years. years old in 2020 (the same rule applies in 2021, but only for an unused balance carried over from 2020 to 2021).
Finally, these changes can be applied retroactively, according to the National Law Revieware none of these changes obligated– an employer can use some or all of these changes, or none at all. At the very least, the new law relaxes IRS restrictions, but you’ll want to check with your employer if and when these changes are at your own expense FSA plan.