Signed into law December 27, 2020
The new Consolidated Appropriations Act of 2021 was signed into law and includes several provisions that provide relief for your clients’ employees that participate in healthcare and/or dependent daycare flexible spending accounts. These provisions are not mandated and are at the discretion of the employer to enact. To make changes, an employer will need to amend their Plan Document and communicate any changes to employees.
Extended Grace Period
In order to allow employees to use their remaining FSA account balances (for both healthcare and dependent daycare FSAs) for a plan year ending in 2020 and/or 2021, an additional 12 months after the end of the Plan Year may be permitted to submit claims for expenses incurred between the end of the Plan Year and 12 months post-Plan Year end.
Note: An extended period for Healthcare FSAs could affect the employee’s ability to make contributions to a Health Savings Account (HSA) during the next Plan Year.
Carryover of Unused Funds
In order to allow employees to use their remaining FSA account balances (for BOTH healthcare and dependent daycare FSAs) for a Plan Year ending in 2020 or 2021, participants may carryover unused funds, with no dollar limit, to a Plan Year ending in 2021 and/or 2022.
Employees are permitted to make prospective election changes for a Plan Year ending in 2021 regarding their Healthcare and/or Dependent Daycare FSAs. These changes may include revoking an existing election, making a new election, or decreasing / increasing an existing election to a Healthcare FSA or Dependent Daycare FSA on a prospective basis.
Inactive Healthcare FSA Participant Access to Unused Funds
An employer may permit employees who ceased to participate in a Healthcare FSA during calendar year 2020 or 2021 to use their remaining balance through the end of the Plan Year in which participation ceased (including a grace period if applicable) without any regard to electing (or paying for) COBRA.
Increased age maximum for Dependent Daycare FSA
The new law provides that if a participant enrolled in a Dependent Daycare FSA had a child that turned age 13 in the 2020 Plan Year (more specifically, in the plan year for which the open enrollment period ended on or before January 31, 2020), then the participant may be reimbursed for expenses incurred after the child’s 13th birthday for the remainder of that plan year, or if there is an unused balance at plan year end, in the following year until the child turns age 14.
The IRS released further guidance on this law in Notice 2021-15.
Released on May 12, 2020
The following is a summary of some of the provisions of IRS Notices 2020-29 and 2020-33 which were issued May 12, 2020. You will also be able to access the links to both notices so that you can review the entire content included in the Notices here: IRS Notice 20-29 and IRS Notice 20-33 .
- Employees who are eligible to participate in the employer’s Section 125 Cafeteria Plan are permitted to make prospective election changes during calendar year 2020 regarding employer-sponsored health changes, a Healthcare FSA, and/or a Dependent Daycare FSA.
- Employees may be permitted to:
- Make a new election for employer-sponsored health coverage on a prospective basis, if the employee initially declined to elect employer-sponsored health coverage.
- Revoke an existing election for employer-sponsored health coverage and make a new election to enroll in different health coverage sponsored by the same employer on a prospective basis (including changing enrollment from self-only coverage to family coverage).
- Revoke an existing election for employer-sponsored health coverage on a prospective basis, provided that the employee attests in writing that the employee is enrolled, or immediately will enroll, in other health coverage not sponsored by the employer.
- Revoke an election, make a new election, or decrease or increase an existing election regarding a Healthcare FSA on a prospective basis.
- Revoke an election, make a new election, or decrease or increase an existing election regarding a Dependent Daycare FSA on a prospective basis.
- Revised election amounts contributed to the Healthcare FSA may be used for expenses incurred during the Plan Year that begins on or after January 1, 2020.
- An employer is permitted to make these election changes, but is not required to do so.
- In order to allow employees to use their remaining FSA account balances for Plan Years and Grace Periods that end prior to December 31, 2020, participants may be permitted to submit claims for expenses incurred between the end of the Plan Year or Grace Period and December 31, 2020.
- Please note that an extended period for Healthcare FSAs could affect the employee’s ability to make contributions to a Health Savings Account (HSA) during the next Plan Year.
- If the Healthcare FSA includes a carryover provision, the maximum unused amount that can be carried over to the next Plan Year is increased from $500 to $550 (and indexed for inflation for Plan Years beginning after 2020).
- Amendments to documents for the 2020 Plan Year must be adopted on or before December 31, 2021 and may be effective retroactively to January 1, 2020.
- Telehealth and other remote care services can be covered by another health plan and not prevent an employee from contributing to a Health Savings Account (HSA). This provision applies to services provided on or after January 1, 2020, with respect to Plan Years beginning on or before December 31, 2021.
- Individual Coverage HRA’s are permitted to reimburse individual insurance policy premiums incurred prior to the beginning of the Plan Year for coverage during the Plan Year.
Signed on March 27, 2020
Supplemental Funds Signed on April 24, 2020
Economic impact payments for individuals
The CARES Act provides for Economic Impact Payments to American households of up to $1,200 per adult for individuals whose adjusted gross income was less than $99,000 (or $198,000 for joint filers) and $500 per child under 17 years of age, up to $3,400 for a family of four.
Payments are currently in the process of being distributed to eligible individuals.
Small Business Paycheck Protection Program (PPP)
- Originally authorized up to $349 billion in loans to certain small businesses, eligible nonprofit organizations, veteran’s organizations and Tribal businesses.
- The funds originally available have been exhausted. Additional funds of $310 were made available as of April 24, 2020. Please note that funds will be available for only a short period of time after April 24, 2020 due to the demand for financial assistance.
- Loan amounts for approved expenses may be forgiven under certain circumstances.
- Loan amounts not forgiven will be deferred for 6 months and must be repaid within 24 months.
- Interest rates on loans can’t exceed 1%.
- The maximum loan amount is $10 million.
- Please click on the following link for more details.
Economic Injury Disaster Loans and Loan Advance
In response to the Coronavirus (COVID-19) pandemic, small business owners in all U.S. states, Washington D.C., and territories are eligible to apply for an Economic Injury Disaster Loan advance of up to $10,000. The SBA’s Economic Injury Disaster Loan program provides small businesses with working capital loans of up to $2 million that can provide vital economic support to small businesses to help overcome the temporary loss of revenue they are experiencing.
The loan advance will provide economic relief to businesses that are currently experiencing a temporary loss of revenue. This loan advance will not have to be repaid.
SBA is unable to accept new applications at this time for the Economic Injury Disaster Loan (EIDL)-COVID-19 related assistance program (including EIDL Advances) based on available appropriations funding.
Applicants who have already submitted their applications will continue to be processed on a first-come, first-served basis.
Coronavirus Relief Fund (for State, Local and Tribal governments)
The CARES Act established the Coronavirus Relief Fund (the “Fund”) and appropriated $150 billion to the Fund. Under the CARES Act, the Fund is to be used to make payments for specified uses to States and certain local governments; the District of Columbia and U.S. Territories (consisting of the Commonwealth of Puerto Rico, the United States Virgin Islands, Guam, American Samoa, and the Commonwealth of the Northern Mariana Islands); and Tribal governments. The CARES Act provides that payments from the Fund may only be used to cover costs that:
- are necessary expenditures incurred due to the public health emergency with respect to the Coronavirus Disease 2019 (COVID–19);
- were not accounted for in the budget most recently approved as of March 27, 2020 (the date of enactment of the CARES Act) for the State or government; and
- were incurred during the period that begins on March 1, 2020, and ends on December 30, 2020.
Employee Retention Credit
Employers of all sizes who are forced to close or suffer economic hardship due to COVID-19 are eligible to receive a refundable tax credit against payroll taxes for 50% of wages paid, up to $10,000 per employee. Qualifying employers must fall into one of two categories:
- The employer’s business is fully or partially suspended by government order due to COVID-19 during the calendar quarter.
- The employer’s gross receipts are below 50% of the comparable quarter in 2019. Once the employer’s gross receipts go above 80% of a comparable quarter in 2019, they no longer qualify after the end of that quarter.
These measures are calculated each calendar quarter. The credit is available for wages paid or incurred from March 13, 2020 through December 31, 2020.
Payroll Tax Deferral
In order for employers to better maintain operations and payroll, employers and self-employed individuals can defer paying the employer share of Social Security tax they are otherwise responsible for paying for taxes imposed upon the Employer between now and the end of 2020. One-half of the amount borrowed must be repaid by December 31, 2021 with the balance having to be repaid no later than December 31, 2022. There is no interest imposed on the amount of the loan. If the Employer receives a loan under the Paycheck Protection Program, taxes imposed between the date of the loan and December 31, 2020 will not be eligible for the payroll tax deferral program.