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IRS Gives More Flexibility For Cafeteria Plans Due To Virus

By David van den Berg · May 12, 2020, 5:48 PM EDT

Taxpayers enrolled in so-called cafeteria health benefit plans will temporarily have greater flexibility to make midyear elections for health coverage under guidance issued by the IRS Tuesday to provide relief from the effects of the novel coronavirus.

Under Notice 2020-29, cafeteria plans organized under Internal Revenue Code Section 125 can allow eligible employees to make new prospective elections if they initially declined to elect employer-sponsored coverage, or revoke an existing election and make a new one to enroll in different coverage sponsored by the same employer on a prospective basis. The notice also provides greater flexibility on grace periods for applying unused amounts in health flexible spending accounts and dependent care assistance programs.

The relief in the notice is available for the 2020 calendar year in response to the COVID-19 pandemic, the Internal Revenue Service said.

Section 125 cafeteria plans are written plans, maintained by employers, in which all participants are employees who can choose among two or more benefits consisting of cash and qualified benefits, according to the notices.

Notice 2020-29 also clarified guidance released in March that said high-deductible health plans may provide coverage for testing and treatment related to COVID-19 before participants meet minimum deductibles without jeopardizing their status under federal tax law.

The agency's Tuesday notice clarified that the March relief applies to reimbursements of expenses incurred on or after Jan. 1, 2020, and that it includes the panel of diagnostic testing for influenza A and B, norovirus and other coronaviruses, respiratory syncytial virus and any items or services that must be covered with zero cost sharing under Section 6001 of the Families First Coronavirus Response Act .

Under the Tuesday guidance, the March relief on high-deductible plans and COVID-19 costs and an exemption in the Coronavirus Aid, Relief and Economic Security Act  that allows HSA-eligible high deductible health plans to cover telehealth services can be applied retroactively to Jan. 1, 2020.

The agency on Tuesday also increased the maximum carryover amount in a health flexible spending account under a cafeteria plan from $500 to $550. Notice 2020-33 responds to a 2019 executive order calling on the Treasury secretary to issue guidance increasing the amount of FSA funds that can be rolled over without penalty, according to an IRS statement.

--Editing by Vincent Sherry. 

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