Versatile spending account guidelines are extra beneficiant. What to know
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The rules for flexible spending accounts are temporarily more generous for workers thanks to two pieces of legislation.
The American rescue plan – the $ 1.9 trillion Covid relief package signed by President Joe Biden on Thursday – increases the amount companies can allow workers to foster their FSAs in their foster care rules for FSAs in 2021 for dependent care and health for a time.
Employers can choose to make changes to their plans under these temporary rule changes.
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FSAs allow employees to keep pre-tax money for qualified medical expenses or childcare expenses. Last year, 46% of workers had access to a health FSA and 43% had access to a FSA for dependent care, according to the Bureau of Labor Statistics.
When the pandemic broke nationwide in 2020, some households saw their FSA dollars not being spent as medical appointments were canceled or postponed and childcare facilities were closed. Here’s what you need to know about the changes once your company adopts them.
For starters, the cap on contributions to FSAs for dependent care in 2021 under the latest legislative relief package is much higher. For married couples filing joint tax returns, the limit is $ 10,500 versus $ 5,000. For individual filers, the limit is $ 5,250 (versus $ 2,500).
The limit for health FSAs in 2021 is $ 2,750 – unchanged from 2020 and unaffected by the most recent economic slump.
Regardless, the rules for transferring unused FSA funds have changed from one year to the next for the time being.
Regardless of what type of FSA you have, the Consolidated Funds Act, which went into effect in December, allows you to carry over funds that are temporarily unused. (Again when your company signs up.)
“Employees can transfer all or part of their unused FSA funds to health and / or dependent care starting with a plan year ending in 2020 or 2021,” said Marcia Wagner, founder of the Wagner Law Group.
(Plan years often run from January to December, although there may be employers whose plan year starts in May, for example.)
Typically, you cannot carry over unused funds year-to-year in a dependent care FSA, and carry over amounts for health FSAs are capped ($ 550 with no deferral) – although they can allow up to 2.5 months grace period You spend the money.
The temporary rules do not require employers to require you to spend any transferred health dollars within this period.
For plans that follow the calendar year, this deadline would be March 15, i.e. Monday. As that date approaches, you probably would have heard from your company if they extended the grace period. However, it is worth confirming if you are unsure.
Vice President of Compliance for Health E-Commerce
“You should always check with your employer about your deadlines and your renewal options,” said Rachel Rouleau, vice president of compliance for Health-E-Commerce.
The temporary rules also allow you to change your mid-year contributions for both types of FSA. This is usually only allowed when life changes, such as marriage or the birth of a child. The IRS also allowed this to happen in 2020, Rouleau said.
If you leave your company, you will now have access to your FSA for the rest of the year, Rouleau said. Typically, you will lose access to your FSA if you don’t stay under your employer’s COBRA health insurance plan, which allows employees to stay on their former employer’s insurance for up to 18 months.
Employers wishing to offer any of these FSA relief options would have to change their plan, although the change may be retroactive.