FSA CARRYOVER LIMITS

ORGANIZATIONS CAN INCREASE FSA CARRYOVER LIMITS

IRS Notice 2020-33 allows organizations to increase the carryover amount limit for Flexible Spending Accounts.

Normally, organizations have the option to allow carryover amounts of up to $500 for healthcare FSAs. If organizations adopt the optional plan amendment, employees will be able to roll over an additional amount equal to 20 percent of the maximum healthcare FSA salary reduction contribution for the upcoming plan year. This would allow employees to roll over up to $550 into 2021, giving them increased access to tax-advantaged benefits dollars for healthcare.

If you offer an FSA, consider increasing the carryover limit so participants don’t lose money in this crucial time. Carryovers can help boost adoption and participation, enabling organizations to capitalize on FICA tax savings.

It’s important to note that DOL relief itself makes no reference to open enrollment periods, nor do COBRA regulations require that open enrollment periods for COBRA qualified beneficiaries run concurrent with active employee open enrollment periods.
Nevertheless, organizations may want to facilitate open enrollment for COBRA participants at the same time – regardless of payment status.

Organizations can adopt this amendment to make their FSA benefit more enticing in 2021. They can also choose to add the amendment retroactively for the 2020 plan year by December 31, 2021. The amount is set in the Internal Revenue Code and is indexed for inflation.

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Status

Optional

Source

IRS Notice 2020-33

Effective timeline

Permanent (amendment will
apply to all future plan years)

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