Your flexible workplace expense account (FSA) may no longer be “use or lose strictly””–the last relief bill allows you to roll on background. In other words, if you lost spending on FSA in 2020, you may be able to use those funds in 2021. That’s what you need to know.
Changes to your FSA
Many workers have FSA through their employer, which allows them to use pre-tax dollars to pay for unpaid health-related expenses or dependencies, such as glasses, over-the-counter medications or trips to the dentist (for more information on qualifying expenses from 2021, read this Lifehacker publication ).
Tthe disadvantage with FSAs (unlike HSAs) are what they are “Use or lose” accounts –the money you have deposited has which will be spent at 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 reported next year to pay for previous year’s claims.
- A grace period of 2.5 months for the new year, in which to pay the claims of the previous year.
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Uhowever, in the Taxpayer Security and Disaster Tax Relief Act of 2020, these rules have changed (rules that also apply to dependency care FSAs, which are similar plans that benefit an employee’s dependents). According to the legal news site, JD Supra, FSA holders can take advantage of these changes:
- Extension and extended grace periods for 2021 and 2022. Any balance of up to $ 5,000 (for families) at the end of 2020 may be reported in 2021 and any balance at the end of 2021 may be reported in 2022. Likewise, grace periods extend 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).
- Elections to the FSA account are no longer irrevocable during the 2021 plan year. Elections may be prospectively modified by employers, for any reason, during 2021.
- Completed participants can now access their accounts until 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 end date or to the full amount chosen; this will require clarity on the part of the IRS).
- The maximum age is increased from 13 to 14 years for the calendar year 2020, for one year of the plan for which the regular enrollment period ended on or before January 31, 2020. years of seniority during 2020 (the same rule applies to 2021, but only for an unused balance carried to 2021 from 2020).
Finally, while these changes can be applied retroactively, according to the National Law Review, none of these changes is obligatory—An employer can use some or all of these changes, or none. At the very least, the new law loosens IRS restrictions, but you’ll want to check with your employer. if and when these changes will be in effect FSA Plan.