Unused funds stay through year-end, next year's health care rollover amount increases, plus newly eligible expenses
In an announcement from the IRS shared on May 12, 2020, the IRS Notice 2020-29 allowed employers to provide relief for employees with flexible spending accounts that experienced disruption due to COVID-19. For example, employees who set aside money in their FSA for a scheduled surgery could not spend it because “nonessential” medical services were postponed.
The University of Kentucky offers all relief options provided by the IRS. This means that your flexible spending accounts are more flexible now and in the near future:
Current dependent care FSA and health care FSA funds have a grace period through December 31, 2020
The money you set aside in your FSA usually expires by June 30 if you haven't used it for eligible expenses incurred by June 30. This grace period allows you to use your current funds in your FSA through December 31, 2020 for expenses incurred from July 1, 2020 through December 31, 2020.
Next year’s (July 1, 2020 to June 30, 2021) health care FSA rollover amount increased by $50
Usually, if you have unused funds in your health care FSA by June 30, up to $500 of your balance will be rolled over for use on July 1 and you'll lose any remaining balance above $500. Starting next July, for the plan year ending June 30, 2021, the rollover amount increases to $550.
Additionally, earlier this year, the COVID-19 stimulus package permanently expanded the list of eligible expenses covered by a health care FSA. Eligible expenses now include menstrual care products and over-the-counter medications.
This relief comes during benefits open enrollment, the annual opportunity for flexible spending account participants to decide whether to set money aside for next year and how much.
Because flexible spending accounts are offered on an insurance plan year, starting on July 1 and ending on June 30, participants must choose to re-enroll each year during benefits open enrollment if they would like to continue. Open enrollment ends May 15, 2020.
If you add an FSA during open enrollment, the full amount you choose to set aside becomes available for you to use on eligible expenses in July.
What does this news mean for current FSA participants?
Here are our tips to help you make decisions about next year’s FSA (July 1, 2020 to June 30, 2021) during open enrollment.
You might consider…
Setting aside less if
- Your $500 rollover funds will cover the difference in your upcoming health care expenses.
- Your medical and dependent care FSA accounts are currently overfunded and you’ll benefit from the grace period.
- You already adjusted your dependent care FSA funds when we allowed that option because childcare centers closed in early 2020. We plan to continue providing flexibility as the situation evolves as permitted by the IRS.
Setting aside more if
- You plan to purchase many of the items newly covered including menstrual care products and over-the-counter medicines.