Save Money With the New Covid-Relief FSA Rules

Photo: Vitalii Vodolazskyi (Shutterstock)

Your workplace flexible spending account (FSA) might no longer be strictly “use it or lose it”—the latest relief bill allows you to roll over funds. In other words, if you missed out on spending down your FSA in 2020, you might be able to use those funds in 2021. Here’s what you need to know.

Changes to your FSA 

Many workers have FSAs through their employer, which allows them to use pre-tax dollars to pay for unreimbursed health-related or dependent-care expenses such as glasses, over-the-counter drugs, or trips to the dentist (for more on qualified expenses as of 2021, read this Lifehacker post ).

The drawback with FSAs (unlike HSAs) is that they’re “use it or lose it” accounts —the money you’ve deposited has to be spent by the end of the company’s fiscal year—with two exceptions, as some employers permit one of two options:

• Up to $550 of the fund can be carried over into next year to pay for the previous year’s claims.
• A 2.5 month grace period into the new year, in which to pay for the previous year’s claims.

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Under the Taxpayer Certainty and Disaster Tax Relief Act of 2020, however, these rules have changed (rules which also apply to Dependent Care FSAs, which are similar plans that benefit an employee’s dependents). Per the legal news site, JD Supra, FSA holders can take advantage of these changes:

• Extended carry-over and grace periods for 2021 and 2022. Any balance up to $5,000 (for families) at the end of 2020 can be carried forward into 2021, and any balance at the end of 2021 can be carried forward into 2022. Likewise, grace periods are extended from the original 2.5 months to the end of the full calendar year (i.e., you have all of 2021 to use your 2020 funds).
• FSA account elections are no longer irrevocable during the 2021 plan year. The elections can be changed prospectively by employers, for any reason, during 2021.
• Terminated participants can now access their accounts through the end of the plan year in which their participation terminates, plus any grace period. (However, it’s unclear if this applies just to unused contributions as of the termination date or the entire elected amount—this will require clarity from the IRS).
• The maximum age is increased from age 13 to age 14 for the 2020 calendar year, for a plan year for which the regular enrollment period ended on or before January 31, 2020. That means an employee may be reimbursed for dependent care expenses for their 14 year-old during 2020 (the same rule applies to 2021, but only for an unused balance carried into 2021 from 2020).

Lastly, while these changes can be applied retroactively, per the National Law Review, none of these changes are mandatory—an employer might use some or all of these changes, or none at all. At the very least, the new law loosens IRS restrictions, but you’ll want to check with your employer on if and when these changes will be in effect for your own FSA plan.

from Lifehacker https://ift.tt/359MBxG

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