As planning for 2021 benefits begins, don't forget FSA changes available for 2020

The COVID-19 pandemic has caused companies and individuals alike to pay closer attention to budgets and expenses as everyone remains uncertain of the new normal. Expenditures on medi-cal procedures is one area that has experienced a change in behavior. Employees regularly elect what they will contribute to health flexible spending accounts (FSAs) based on expected medical costs. When elective surgeries were delayed and many healthcare provider offices temporarily closed because of the coronavirus, employees experienced lower medical costs than expected—which also meant less opportunity to use up health FSA account balances. Normally, health FSAs are required to apply a "use it or lose it" rule with very limited opportunities for grace periods and/or carryovers. Luckily, the IRS has provided temporary relief to assist employees with unex-pected health FSA account balances in 2020.

What are we talking about?

The following brief definitions may be helpful:

A cafeteria plan is a plan offered by an employer to provide eligible employees an opportunity to pay premiums to receive certain benefits with pretax dollars.

A health FSA plan is an employer-sponsored benefit plan that can be offered under a cafeteria plan. A health FSA permits participants to pay for or be reimbursed for eligible medical expenses with pretax dollars from their health FSA account.