In response to the COVID-19 pandemic, Congress and the IRS have taken several steps to ease the application of these strict rules. In contrast, individuals can maintain HSA eligibility if they are covered by "limited purpose" FSAs that limit reimbursement to certain medical expenses, such as dental and vision benefits. Finally, health savings accounts (HSAs), which allow individuals covered by a high deductible health plan to make deductible contributions for the payment of certain medical expenses, are not available to individuals covered by "general purpose" health care FSAs, i.e., those FSAs that will reimburse all qualified medical expenses. Additionally, health care FSAs are subject to the "uniform coverage" rule, which requires the full amount elected for the year to be immediately available for reimbursement. Health care FSAs, dependent care FSAs, and the cafeteria plans through which employees elect to contribute to FSAs and/or contribute their share of the premium for employer-sponsored health coverage are subject to strict rules that (i) can result in employees forfeiting amounts they do not use by the end of the plan year, (ii) generally limit the circumstances under which employees may change their cafeteria plan elections during the year and (iii) require amendments to apply on a prospective basis only. Employers should discuss implementation of the changes with their FSA vendor, prepare appropriate employee communications and ensure that all necessary amendments are adopted in a timely manner. Accordingly, employers should carefully review all available options and determine which special rules they want to adopt. Similar flexibility is provided with respect to the Notice's additional relief for midyear elections for employer-sponsored health coverage. The Notice provides employers with enormous flexibility in choosing how the Act's temporary special rules will apply in light of employers' concerns about cost and FSA administration, while trying to maximize employees' access to unused funds. The Notice also provides additional relief allowing midyear elections for employer-sponsored health coverage and confirms the amendment deadlines for both changes under the Act and the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). On February 18, the Internal Revenue Service (IRS) published Notice 2021-15 (Notice), providing much anticipated guidance clarifying the temporary special rules for health care and dependent care flexible spending accounts (FSAs) that were included in the Tax Certainty and Disaster Relief Act (Act) enacted on December 27, 2020.
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