COVID Turmoil for Account-based Plans

COVID Turmoil for Account-based Plans

Many types of account-based plans have been negatively impacted by the COVID turmoil.  Given the changed landscape of employment, many participants have not been able to use amounts from their account-based plans, such as a medical flexible spending (FSA) account, dependent care spending account, or qualified transportation account.  Two recent IRS Information letters addressed these situations.  It is important to note that while guidance provided by IRS Information Letters does not constitute law, they do indicate the IRS’ position on a particular fact situation.

Qualified Transportation Accounts

In IRS Information Letter 2020-0024, the IRS was asked whether a qualified transportation account could be transferred from a mass transit account to a qualified parking account.  The IRS responded that as long as the employer’s plan includes both types of accounts in its Section 132(f) qualified transportation program, and as long as the maximum limit of the accounts has not been exceeded, the amount in one account could be transferred to the other account. 

As a reminder, a Section 132(f) qualified transportation program is one that provides reimbursement for certain transportation expenses and is funded through direct employer contribution, reimbursement, or salary reduction.  The types of transportation expenses that can be reimbursed under this type of program include van pooling, mass transit fares, and/or qualified parking.  The limitations on reimbursement of these transportation expenses are subject to indexing.  For both 2020 and 2021, the limit for commuter highway vehicle (van pooling) and transit passes is $270 per month; and the limit for qualified parking is $270 per month. 

Dependent Care Assistance Accounts

IRS Information Letter 2020-0023 addressed the continuing challenges of dependent care assistance spending accounts.  As has been stated in previous IRS guidance, no refund of account balances is permissible at this time. 

On May 12, 2020, the IRS issued guidance (IRS Notice 2020-29) that relaxed the status change events (see our CBIZ article, IRS Guidance and Relief for Cafeteria Plans and other Account-based Plans, 5/13/20).   According to this guidance, the IRS is temporarily allowing, but not requiring, FSA plans and dependent care assistance plans to permit individuals to revoke their elections, make a new election, or decrease or increase an existing election on a prospective basis.  Further, Notice 2020-29 allows but does not require an extension of time through December 31, 2020 to incur claims for plan years ending in, or grace periods ending in, 2020.

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The information contained in this article is provided as general guidance and may be affected by changes in law or regulation. This article is not intended to replace or substitute for accounting or other professional advice. Please consult a CBIZ professional. This information is provided as-is with no warranties of any kind. CBIZ shall not be liable for any damages whatsoever in connection with its use and assumes no obligation to inform the reader of any changes in laws or other factors that could affect the information contained herein.

COVID Turmoil for Account-based Plans~/Portals/0/PackFlashItemImages/WebReady/COVID - Account-based Plans.jpghttps://gp-stage.cbiz.com/Portals/0/liquidImages/WebReady/COVID - Account-based Plans.jpgMany types of account-based plans have been negatively impacted by the COVID turmoil.  Given the changed landscape of employment, many participants have not been able to use amounts from their account-based plans, such as a medical flexible spending account, dependent care spending account, or qualified transportation account.  Two recent IRS Information letters address these situations. ...2020-11-04T23:59:13-05:00

Many types of account-based plans have been negatively impacted by the COVID turmoil.  Given the changed landscape of employment, many participants have not been able to use amounts from their account-based plans, such as a medical flexible spending account, dependent care spending account, or qualified transportation account.  Two recent IRS Information letters address these situations.