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The COVID-Related Taxpayer Certainty and Disaster Tax Relief Act of 2020, which was included in the overall appropriations package enacted on December 27, 2020, provided employers discretion in 2021 and 2022 to adjust their cafeteria plans to help employees meet unforeseen consequences of the public health crisis.

Now, IRS Notice 2021-15 implements the relief, which includes provisions easing restrictions for employee benefit plans in the use of flexible spending accounts (FSAs), allowing tax-free dollars to be set aside for medical and dependent care expenses. 

Typically, FSA funds that are not spent by the employee within the plan year, subject to limited grace periods or certain carryover amounts, are forfeited. Since the pandemic began, employees with FSAs are more likely to have unused amounts for medical or daycare expenses left in their account at the end of 2020 and 2021. The notice permits employers to amend their plans to help their employees utilize these programs without risking forfeiture of the amounts they set aside.

The new guidance allows certain mid-year election changes for health FSAs and dependent care assistance programs ending in 2021. It also provides flexibility—

  • For the carryover of unused amounts from the 2020 and 2021 plan years
  • To extend the permissible period for incurring claims for plan years ending in 2020 and 2021
  • To adopt a special rule regarding post-termination reimbursements from health FSAs
  • For a special claims period and carryover rule for dependent care assistance programs when a dependent "ages out" during the COVID-19 public health emergency

The IRS has additional COVID-19-related information for plan participants, employers, and other plan administrators here.


Mary Bachinger

Director, Tax Policy


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