Following up on changes to flexible spending accounts (FSAs) implemented by the December 2020 budget bill (the Consolidated Appropriations Act, 2021), the IRS provided interpretative guidance of its own in Notice 2021-15.
As we reported previously, the budget bill provided several new and rather generous rules for both health care and dependent care FSAs, such as the ability to carryover all unused amounts from 2020 into 2021, the ability to carryover all unused amounts from 2021 into 2022, the ability to apply a grace period for up to a full 12 months (rather than the usual 2½ months), and the ability to permit employees to make prospective election changes.
The new IRS guidance follows up on these rules with several clarifications and additions, and there are many items for employers to think about when deciding what changes to implement. The below-discussed changes are not required, and employers have a lot of flexibility in deciding how to implement any desired changes.
Some notable items for employers to consider include:
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