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Late December 21, 2020, Congress passed the Consolidated Appropriations Act of 2021 (the Act). The Act contains additional COVID-19 relief for taxpayers and includes a provision that allows employers to amend their health and dependent care flexible spending account plans (FSAs) to provide additional flexibility for employees who have unused amounts credited to their accounts.

For both health and dependent care FSAs, the Act permits employers to allow the following:

  • Carryover of unused amounts from 2020 to the plan year ending in 2021;
  • Carryover of unused amounts from 2021 to the plan year ending in 2022;
  • Extend the grace period for plan years ending in 2020 or 2021 to 12 months after the end of the plan year;
  • Allow prospective changes to the contribution amount elected by an employee for health and/or dependent care FSAs for plan years ending in 2021, whether or not the participant has experienced a change in status;
  • For employees who stopped participating in a health FSA during calendar 2020 or 2021, allow the employee the opportunity to receive reimbursements from unused benefits or contributions through the end of the plan year in which the employee’s participation ceased (including the grace period, if applicable). At this point, it is not clear whether this provision permits the reimbursement of expenses incurred after termination of employment or is simply an extension of the runout period;
  • Increase the maximum age by one year (age 13 to age 14) for dependent care FSAs if the employee participated in the dependent care FSA and the dependent reached age 13 during the 2020 plan year.

The provisions in the Act are not required. Employers that wish to take advantage of the relief must amend their plans by the end of the calendar year beginning after the end of the plan year for which the amendment is effective. For example, if the employer wishes to amend the plan and the plan year runs from August 1, 2019 through July 31, 2020, then the amendment must be adopted by December 31, 2021. Similarly, for a calendar year plan, an amendment for the 2020 plan year must be adopted by December 31, 2021.


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