On Feb. 18, 2021, the IRS released Notice 2021-15 to clarify special rules for Section 125 plans, health flexible spending arrangements (FSAs) and dependent care assistance programs (DCAPs).
Temporary Special Rules for Health FSAs and DCAPs
The Notice is intended to clarify the application of special
rules for health FSAs and DCAPs provided under the Consolidated Appropriations
Act, 2021 (CAA). The CAA provides flexibility with respect to carryovers of
unused amounts, extends the time period for incurring claims, permits
post-termination reimbursements from health FSAs and provides special rules for
dependents who “age out” of DCAP coverage during the COVID-19 public health
emergency. The Notice provides details and examples regarding these rules.
Section 125 Mid-year Election Changes
The Notice’s relief for mid-year Section 125 plan
elections for plan years ending in 2021 is similar to prior guidance for calendar
year 2020. Section 125 plans may permit employees to make or revoke election
changes in certain circumstances. The Notice clarifies that employers can
decide how long to permit mid-year election changes with no change in status
during the plan year and can limit the number of election changes during the
plan year that are not associated with a change in status
Over-the-Counter
Drugs
The Notice also provides relief with respect to plan
amendments expanding reimbursable expenses for health FSAs and HRAs to include
over-the-counter drugs and menstrual care products. Amendments to these plans
must normally be made on a prospective basis, but these amendments may allow
these reimbursements beginning on or after Jan. 1, 2020.
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