Your flexible workplace expense (FSA) account may no longer be strictly “use or lose”“–the latest help bill allows you to run over funds. In other words, if you lost your spending with the FSA in 2020, you may be using these funds in 2021. Here’s what you need to know.
Changes to the FSA
Many workers have the FSA through their employer, which allows them to use pre-tax dollars to pay reimbursed health or dependent care expenses, such as glasses, over-the-counter medications or trips to the dentist (for more on qualified expenses starting in 2021, read this Post Lifehacker ).
The disadvantage with FSA (as opposed to HSA) is that they are “Use it or lose it” accounts –the money you deposited has to be spent by 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 forward next year to pay for previous year’s applications.
- A grace period of 2.5 months until the new year, in which to pay the applications of the previous year.
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Uhowever, in accordance with the Taxpayer Safety and Tax Reduction Act 2020 Disaster these rules have changed (rules that also apply to FSAs for the care of dependents, which are similar plans for the benefit of an employee’s dependents). According to the legal news site, JD Supra, FSA holders can take advantage of these changes:
- Extended extensions and grace periods for 2021 and 2022. Any balance up to $ 5,000 (for families) at the end of 2020 may be carried forward to 2021 and any balance at the end of 2021 may be carried forward to 2022. Likewise, grace periods are extended from the initial 2.5 months until the end of the entire calendar year (i.e., you have the entire year 2021 to use the 2020 funds).
- Elections for FSA accounts are no longer irrevocable during the 2021 plan year. Elections may be changed prospectively by employers, for any reason, in 2021.
- Terminated participants can now access their accounts by the end of the plan year in which their participation ends, plus any grace period. (However, it is unclear whether this applies only to unused contributions from the termination date or the full amount chosen – this will require clarity from the IRS).
- The maximum age is increased from the age of 13 to the age of 14 for the calendar year 2020, for a plan year for which the regular enrollment period ended on or before January 31, 2020. This means that an employee can be reimbursed for expenses. dependent care for 14-year-olds in 2020 (the same rule applies in 2021, but only for an unused balance carried forward to 2021 from 2020).
Finally, although these changes can be applied retroactively, according to the national law journal, none of these changes is compulsory—An employer may use some or all of these changes or not at all. At the very least, the new law loosens IRS restrictions, but you’ll want to see your employer if and when these changes will be in effect for you ASF plan.