IRS Releases Two New COVID-19 Notices


IRS Releases Two New COVID-19 Notices

To provide additional relief to Americans during these challenging times, the IRS released Notice 2020-29 and 2020-33. These notices provided new relaxed rules for 2020 for making elections under Cafeteria plans, using amounts during a grace period or carryover period changes to the method determining the carryover amounts under Health Flexible Spending Accounts (FSAs)  and clarifying which premiums can be reimbursed under Individual Coverage Health Reimbursement Arrangements (ICHRAs).

Notice 2020-29

In Notice 2020-29, the IRS provides for increased flexibility with respect to mid-year elections under a cafeteria plan during calendar year 2020 related to employer sponsored health coverage, Health FSAs and Dependent Care Assistance Plans (DCAPs). This notice also provides increased flexibility with respect to grace periods and carryover periods to apply unused amounts in health FSAs to medical care expenses incurred through December 31, 2020, and unused amounts in dependent care assistance programs to dependent care expenses incurred through December 31, 2020.

Specifically, this notice provides that:



The IRS indicated that these amendments are not required, and an employer has discretion in which rules to adopt. If an employer wishes to adopt them, it must amend its cafeteria plan on or before December 31, 2021.

Notice 2020-33

In Notice 2020-33, the IRS increases the carryover limit (currently $500) of unused amounts remaining as of the end of a plan year in a Health FSA under Cafeteria plan that may be carried over to pay or reimburse a participant for medical care expenses incurred during the following plan year. Specifically, this notice increases the maximum $500 carryover amount for a plan year to an amount equal to 20 percent of the maximum salary reduction contribution under Code Section 125(i) for that plan year. For 2020, this limit is $2750. The carryover limit for 2020 is $550.

Second, this notice clarifies the ability of an ICHRA or Cafeteria plan to reimburse individual insurance policy premium expenses incurred prior to the beginning of the plan year for coverage provided during the plan year. This means that an ICHRA with a calendar year plan year may immediately reimburse a substantiated premium for health insurance coverage that begins on January 1 of that plan year, even if the covered individual paid the premium for the coverage prior to the first day of the plan year.

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