IRS Announces Tax Implications of New Employee Options for Employer Health Plans & Flexible Spending Accounts

New options offered in response to Covid-19

Wolters Kluwer Tax & Accounting is now providing analysis and insights regarding the new mid-year employee health benefit elections and changes to flexible spending accounts for 2020. With many employees furloughed or on reduced hours due to the Covid-19 pandemic, the Internal Revenue Service (IRS) has announced new options for employees to make mid-year employer health plan elections and flexible spending accounts elections and extend the grace period for flexible spending accounts for 2020. Generally, these elections can be made only once per year, with exceptions provided for an employee’s change of status or significant changes in coverage costs.

Changing times prompt action to grant flexibility in benefit elections

The assumptions that employees made during their 2020 benefit elections may have substantially changed since those elections were made at the end of 2019. Rather than waiting until the end of 2020 to make revised elections for 2021, the IRS is permitting employers to allow employees to make mid-year changes to those elections in 2020. The IRS is also giving greater carryover protection to employees utilizing flexible spending accounts.

  • If an employee had initially declined employer health coverage for 2020, the employee may enroll in coverage on a prospective basis
  • If an employee had initially made an employer health plan election, the employee may make a different election on a prospective basis
  • An employee may revoke an existing election of employer health coverage on a prospective basis without making a new election if the employee attests in writing that he or she has other health coverage
  • An employee may revoke an election, make a new election or revise an election with respect to a health flexible spending account or a dependent care flexible spending account, including limited purpose health FSAs
  • Flexible spending accounts may be allowed to extend a carryover period or a grace period ending in 2020 to the end of 2020, as well as reimburse expenses incurred through the end of 2020
  • An employer may allow an employee to make multiple mid-year election changes in 2020
  • Employers have flexibility to adopt all, some or none of these changes, so long as it is done on a nondiscriminatory basis
  • Employers adopting all or some of these changes are required to make plan amendments by December 31, 2021, retroactive back to January 1, 2020, as well as provide timely notice to employees
  • A change in an employee’s health flexible spending account election could still affect the ability of an employee to make health savings account contributions during that period
  • A health plan is permitted to reimburse premiums paid for coverage commencing in the plan year even if the covered individual actually paid the premium for the coverage in the prior year
  • The IRS reaffirms that a high deductible health plan can pay for COVID-19 testing and treatment and telehealth services even if there is no deductible

To read the full press release, click here.

Wolters Kluwer Tax & Accounting offers guidance

Tax expert Mark Luscombe, JD, LL.M, CPA, Principal Federal Tax Analyst at Wolters Kluwer Tax & Accounting, can help explain the new election options and flexibility for flexible spending accounts.

Media Contact

To arrange interviews with Mark Luscombe or other federal and state tax experts from Wolters Kluwer Tax & Accounting on this or any other tax-related topics, please contact:

BART LIPINSKI
847-267-2225
Bart.Lipinski@wolterskluwer.com

AUTHOR

Wolters Kluwer Tax and Accounting

Wolters Kluwer Tax and Accounting is a leading provider of software solutions and local expertise that helps tax, accounting, and audit professionals research and navigate complex regulations, comply with legislation, manage their businesses and advise clients with speed, accuracy and efficiency. Wolters Kluwer Tax and Accounting is part of Wolters Kluwer N.V. (AEX: WKL), a global leader in information services and solutions for professionals in the health, tax and accounting, risk and compliance, finance and legal sectors. We help our customers make critical decisions every day by providing expert solutions that combine deep domain knowledge with specialized technology and services. Wolters Kluwer reported 2016 annual revenues of €4.3 billion. The company, headquartered in Alphen aan den Rijn, the Netherlands, serves customers in over 180 countries, maintains operations in over 40 countries and employs 19,000 people worldwide. Wolters Kluwer shares are listed on Euronext Amsterdam (WKL) and are included in the AEX and Euronext 100 indices. Wolters Kluwer has a sponsored Level 1 American Depositary Receipt program. The ADRs are traded on the over-the-counter market in the U.S. (WTKWY).

All stories by: Wolters Kluwer Tax and Accounting