COVID-19 and Your Accounts

Payments for expenses which qualify under IRC Section 139 will be tax-free if a disaster qualifies as a federal disaster and the payments must be qualified disaster relief payments.

Based on the president’s declaration that the COVID-19 pandemic is a national emergency, and the IRS’ interpretation of the declaration for other tax purposes, it appears that the COVID-19 pandemic is a qualified federal disaster under section 139 which was originally opted after 9/11.

As a result, payments for relief from this disaster will be qualified disaster relief payments under section 139 if: (a) the payments are made to reimburse reasonable and necessary personal, family, living or funeral expenses incurred as a result of the COVID-19 disaster; and (b) the expenses are not compensated by insurance or otherwise (qualified expenses).

Allowable expenses could include the cost of work at home supplies, temporary child care expenses and other out-of-pocket expenses incurred as a direct result of the COVID-19 virus.

If funds are available to reimburse employees for these types of expenses, the employer could establish a Health Reimbursement Arrangement to reimburse employees for their eligible out-of-pocket expenses.

We are able to set up and administer this type of plan if you have an interest in establishing such a plan. Please click HERE for more information on our Qualified Disaster Relief Account (QDRA).

Making Changes to Your Existing Account Elections:

We have received a number of requests concerning how various mid-year changes affect employee elections. This summary is intended to help you understand how the plans that we administer operate. The items that we have included are based upon current regulations. You will need to review the provisions of your plan documents to determine how participants are affected.

Health Savings Accounts

Unless your plan does not permit it, pre-tax employee payroll contributions can be increased, decreased or discontinued at any time.

Employees who are laid off can discontinue their contributions until they return to work.

Employees’ HG Advantage card will remain active.

HSA contributions can still be made for 2019, up until July 15, 2020. However, such contributions will need to be made in a manner other than through 2020 payroll contributions.

The cost of COVID-19 testing can be reimbursed by another health plan (such as a group medical insurance plan or Health Reimbursement Arrangement) even though the minimum deductible amount has not yet been met.

Commuter Spending Accounts

Unless your plan does not permit it, pre-tax employee contributions for mass transit and parking costs can be increased, decreased or discontinued at any time.

Employees who are laid off can discontinue their contributions until they return to work.

Employees’ HG Advantage card will remain active.

Certain transit authorities are allowing participants to obtain a refund for mass transit passes not used. Employees should contact their transit authority to determine whether they can receive a full or partial refund. Any refund will need to be issued as a credit to the employee’s benefit card.

Health Reimbursement Arrangements

Employers, if they decide to do so, are able to decrease the amount/type of expenses that are reimbursed during the Plan Year. Although a decrease in benefits might not be popular with plan participants, it would be more popular than a termination of the plan mid-year.

Employees who are laid off or furloughed will be able to submit manual claims for expenses incurred on or before their date of termination of employment, unless the Employer decides to keep them active on their HRA. Employees will not be able to use their HG Advantage card if they are no longer an active participant in their HRA.

Employees who are laid off or furloughed may be able to elect COBRA and continue to be covered by their medical insurance plan and their HRA. In the event that they elect COBRA for their HRA, their HG Advantage card will be reactivated.

Employers are also permitted to increase the amount/type of expenses that are reimbursed during the Plan Year.

Employers can also establish an additional HRA to pay for only COVID-19 expenses. Please let us know if you would like to discuss this option.

Healthcare Flexible Spending Accounts

Employees who continue working are able to change their election in the following circumstances:

• Marriage
• Divorce, Legal Separation, or Annulment
• Birth, Adoption or Placement for adoption of a child
• Death of a spouse and/or dependent
• Termination or commencement of employment of a spouse
• Switching from part-time to full-time (or vice versa) employment
• Unpaid leave of absence (see below)
• A mid-year change of medical plans does not allow for a change in the Healthcare FSA election amount.
• A decrease in compensation is not a change that permits a Healthcare FSA mid-year change. However, if an employee’s decrease in hours causes him or her to not qualify as a participant, then the employee would be permitted to discontinue participation in their Healthcare FSA upon the decrease in hours.

Employers who have more than 20 employees must offer COBRA to Healthcare FSA participants with a balance as of the date of their termination of employment.

Employees who are laid off or furloughed will be able to submit manual claims for expenses incurred on or before their date of termination of employment. Employees will not be able to use their HG Advantage card if they are no longer an active participant in their Healthcare FSA.

Unpaid leaves of absence

If an employee is out of work for more than 30 days, the plan can allow a participant to make a new election, require that the old election be reinstated, or keep the participant out of the plan until the next plan year.

For an employee who returns to work within 30 days, then he or she may be permitted to continue his or her original election amount for the balance of the year less the contribution amount for the period of time that the employee is out of work. Expenses incurred during the leave of absence would not be eligible for reimbursement.

The following is an example:

At the beginning of the Plan Year, January 1st, Jenifer elects to contribute $1,200 to her Healthcare Flexible Spending Account for the Plan Year. She terminates employment on June 30th and is re-employed on July 16th. Her employer’s calendar-year plan uses the 30 day plus rule. Jenifer ‘s $1,200 election is automatically reinstated for the remaining five and one-half months of the plan year. She also resumes making pre-tax contributions of $100 per month. However, her total salary reductions for the remainder of the plan year are $550…she does not pay the $50 for the 15 days that she was on leave. Expenses during the 15 day period would not be covered unless Jenifer elected COBRA coverage for that period.

If Jenifer was gone for 30 days or more, the plan could treat her as a new hire, require that her former election be reinstated, or not allow Jenifer to participate until January 1st of the next plan year. Healthcare FSA expenses incurred during her more than 30 day absence would not be covered unless she elected COBRA.

Dependent Daycare Flexible Spending Accounts

Employees who continue working are able to change their election in the following circumstances:

• Marriage
• Divorce, Legal Separation, or Annulment
• Birth, Adoption or Placement for adoption of a child
• Death of a spouse and/or dependent
• Termination or commencement of employment of a spouse
• Switching from part-time to full-time (or vice versa) employment
• Unpaid leave of absence (see below)
• Change of residence
• Change in the cost of the daycare provider
• The daycare provider discontinues operations

Employees who are laid off or furloughed will be able to submit manual claims for expenses incurred on or before their date of termination of employment. Employees will not be able to use their HG Advantage card if they are no longer an active participant in their Dependent Daycare FSA.

A special rule applies to participants in a Dependent Daycare FSA with regard to employees who do not return to work during the Plan Year. As long as the plan does not prohibit employees from doing so, dependent daycare expenses incurred after the date an employee terminates employment and through the last day of the plan year (or grace period, if one exists) may be reimbursed from a Daycare FSA balance, if all of the requirements of Section 129 are satisfied.