As part of the COVID-19 relief package passed by Congress earlier this week, the federal government expands on earlier relief issued by the Internal Revenue Service (IRS) for health and dependent care flexible spending account benefits (FSAs). Under these temporary rules, plan sponsors may give their employees additional time to use their FSA account balances
Cafeteria Plans
IRS Expands Mid-Year Change Opportunities for Health and FSA Benefits and Increases Carryover Limit
On May 12, 2020, the IRS released Notice 2020-29, which provides significant flexibility for health insurance and flexible spending account election changes during 2020, and Notice 2020-33, which increases the amount that may be carried over from one year to the next under a health flexible spending account (FSA). The guidance allows increased flexibility…
More Post-Windsor Guidance from the IRS Relating to Benefits for Same-Sex Spouses: Cafeteria Plan Changes, Flexible Spending Accounts and Health Savings Accounts
Prior to the U.S. Supreme Court’s Windsor decision that repealed Section 3 of the federal Defense of Marriage Act (DOMA), same-sex spouses were not recognized as spouses for federal tax and benefits purposes. In the immediate aftermath of Windsor, the Internal Revenue Service (IRS) issued Revenue Ruling 2013-17, which stated the IRS position that, for federal tax purposes, the term “spouse” now includes legally married same-sex couples regardless of whether their state of residence permits same-sex marriage. As a result, the value of employer-provided health coverage for a same-sex spouse would no longer be taxable under federal law, and employees could pay for the coverage on a pre-tax basis through an employer’s cafeteria plan. Employees also could obtain reimbursement for same-sex spouses’ expenses under health care and other reimbursement plans.
On December 16, 2013, the IRS supplemented that guidance with the release of Notice 2014-1, written in Q&A format with examples. Notice 2014-1 clarifies several issues for plan sponsors and administrators of cafeteria plans, flexible spending accounts (FSAs) and health savings accounts (HSAs). First, it allows an employer to permit an employee to make a mid-year election change under its cafeteria plan with regard to health coverage for a same-sex spouse. Second, it provides that an employee may be reimbursed from his or her health care FSA for expenses incurred by a same-sex spouse during the 2013 plan year, even before the date of the Windsor decision (but no earlier than the date of the marriage). Third, it confirms that a same-sex married couple is subject to the joint limits applicable to married couples under HSAs and dependent care plans.