IRS COVID-19 Guidance – IRS Publishes Two Notices – Changes to Cafeteria Plans

IRS Guidance Flexible Spending Accounts COVID-19

The IRS published two Notices on May 12, 2020 allowing changes to cafeteria plans. Notice 2020-29 provides temporary changes due to COVID-19 and Notice 2020-33 changes the maximum carryover amount for health flexible spending accounts. The provisions we discuss below are optional for employers and are not required changes.

IRS Notice 2020-29 gives increased flexibility allowing mid-year changes to employer-sponsored health care coverage, Health Care Flexible Spending Accounts, and Dependent Care Flexible Spending Accounts (FSAs). The notice also provides increased flexibility with respect to certain cafeteria plans to apply unused amounts in health FSAs to medical care expenses incurred through December 31, 2020, and unused amounts in dependent care assistance programs to dependent care expenses incurred through December 31, 2020. This provision will not apply to all FSA plans, but to plans that do not run on a calendar basis or plans that have a grace period ending in 2020.

Employers may allow employees to enroll, change, or revoke their participation in their major group health plan(s). One reminder, what is offered to active employees should be also offered to COBRA members. Also, the Internal Revenue Service announced on May 12, 2020 that employers can allow employees to sign up for a new account, revoke, or change how much pretax money they are putting into in their health care and dependent care accounts. This relief can help those whose healthcare, child care, and dependent care needs that have changed due to COVID-19 fallout. However, funds that have previously been taken out of paychecks to fund these accounts up to the announcement date cannot be pulled out. The relief only involves future contributions.

The new rules can help consumers who may be realizing that they have incorrectly estimated their needs when funding these accounts in 2019. The new rules also allow changes to a health care plan.


KEY CHANGES – Under the new rules account holders may:

  • Make a new election for employer-sponsored health coverage on a prospective basis if the employee initially declined coverage
  • Make changes to health coverage with the same employer – e.g.,  change from individual to family coverage or change from one type of plan to another
  • Revoke existing coverage on a prospective basis, if the employee confirms in writing that they are enrolled or will immediately enroll in other health coverage not sponsored by their employer
  • Revoke an election, make a new election, or decrease or increase an existing election regarding a Health Care FSA on a prospective basis
  • Revoke an election, make a new election, or decrease or increase an existing election regarding a Dependent Care FSA on a prospective basis.

Employers can decide whether to allow these changes. The IRS Notice says that employers are not required to provide unlimited changes and employers may limit the window of time to make election changes. Employers may determine the extent of the allowable change and limit elections to circumstances where the employee’s coverage will be increased or improved as a result of the election – e.g., self only to family coverage or low option plan to high option plan. Employers who have already allowed changes in their health plans due to COVID-19 may rely on this relief retroactively to January 1, 2020.


Notice 2020-33 increases the $500 carryover limit for unused amounts remaining in a health flexible spending arrangement (health FSA) that may be carried over into the following plan year. The new maximum carryover limit is defined as 20 percent of the maximum HFSA salary reduction amount under §125(i) (2020 limit is $2,750), which is indexed for inflation. Thus, for 2020, under this new notice, the carryover amount will increase to $550 ($2,750 x 20%) for 2021 carryovers. This amount will increase in increments of $10 when the HFSA maximum limit increases. Employers may still limit the carryover to a flat dollar amount, even less than $500. If employers wish to implement the new indexed limit, amendments must be signed by the end of the plan year beginning in 2021.

TRI-AD’s COVID-19 Resource Page

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