The government put forth legislation and guidance to reduce the impact of the COVID-19 pandemic. Some of the changes were optional for employers and some were mandatory; some permanent and some temporary. Most of the COVID-19 relief for flexible spending accounts (FSAs) has expired. As employers plan for 2023, they need to know which 2022 FSA relief provisions will no longer apply in 2023.
The Consolidated Appropriations Act (CAA) (and other IRS guidance) that extended the grace period and enhanced carryover provisions for Health FSAs (HFSA) and Dependent Care FSAs (DCFSA) will not extend into 2023. Plan sponsors must follow the terms of their plan document provisions that were in effect before the COVID-19 relief was enacted. If plan documents so provide, for HFSAs, the standard carryovers and grace periods will apply, and for DCFSAs, only the standard grace period will apply.
Before COVID-19, an employer’s cafeteria plan document contained a carryover provision for the HFSA and a grace period for the DCFSA. The employer also requires that the employee must participate in the HFSA in the following plan year to carry over any remaining HFSA balance. During COVID-19, the employer amended its cafeteria plan to allow remaining account balances in both the HFSA and DCFSA to carry over into the next plan year without the next plan year participation requirement and added the cost of living increases for the carryover. At the end of the run-out period for the 12/31/2021 plan year, Employee A had $1,000 left in the HFSA and $1,500 in the DCFSA. These amounts carried over into the 12/31/2022 plan year. At the end of the run-out period for the plan year ending 12/31/2022 (3/31/2023), Employee A has $750 remaining in the HFSA and $500 remaining in the DCFSA. For the HFSA, this employee may only carry over $570 into the 2023 plan year if he/she participates in the HFSA in 2023. The difference of $180 will forfeit after 3/31/2023. For the DCFSA, this employee will forfeit the $500 after 3/31/2023. Keep in mind that the employee has an additional year (3/31/2024) to submit claims for the HFSA account balance due to the Outbreak Period. This additional year does not apply to the DCFSA.
All of the other temporary COVID-19 relief provisions that apply to FSAs have expired, except for HFSA claims submission and appeals deadlines (see the information below on the “Outbreak Period”). What remains are the following permanent changes allowed in various guidance issued by the federal government to soften the pandemic’s impact and provide relief.
- Allowed expenses for feminine products, over-the-counter medications, telehealth, and personal protective equipment (PPE) (applies to HSAs and HRAs, as well)
- HFSA carryover amount increased with cost-of-living adjustments
As a reminder, the Outbreak period is still in place; it was extended through 2/28/2023 and can be extended again by the President at that time. This generally means that individuals have an additional year to meet certain deadlines. This is mandatory legislation that affects:
- COBRA enrollment and payments;
- Employee notification timeframes for divorce, legal separation, a dependent child ceasing to be a dependent, or disability;
- Claims procedure timeframes including ERISA plan HFSA claims submission deadlines; and
- Appeals and external review process timeframes
Our previous blogs have detailed information on the Outbreak Period and deadlines:
Government Agencies Provide Deadline Relief for Health and Welfare Employee Benefit Plans, IRS and DOL Extended FSA Claims Deadlines, and Government Agencies Provide Deadline Relief for Health and Welfare Employee Benefit Plans
Employers and plan sponsors should confer with their own compliance specialists to determine which relief regulations are in place for their organization.
If you have questions about your plans, please contact your Client Service Manager.
TRI-AD and our Associates’ suggestions or recommendations shall not constitute legal advice. No content on our website can be construed as tax or legal advice, and TRI-AD may not be considered your legal counsel or tax advisor. Clients are encouraged to consult with their tax advisor and/or attorney to determine their legal rights, responsibilities, and liabilities. This includes the interpretation of any statute or regulation, federal, state, or local; and/or its application to the clients’ business activities.