New: IRS 2020 Plan Year Rule Change for Health Care & Dependent Care FSA FAQs

  • Under recent Internal Revenue Service (IRS) guidance, employers are allowed to amend certain 2020 Flexible Spending Account (FSA) plan year rules. The State of Michigan has adopted the following provisions that will allow FSA participants to take advantage of previously unused funds from the 2020 FSA plan year:

    • All unused funds from the 2020 plan year will carry over to 2021 for both Health Care and Dependent Care FSAs for employees who had an active account on December 31, 2020 and either did not enroll for the 2021 plan year or are actively enrolled in the 2021 plan year. Normally the Health Care FSA carryover limit is $550 and there is no carryover for Dependent Care FSAs, but IRS provisions have allowed this temporary change for the 2020 plan year. These funds can be applied to eligible 2020 expenses submitted by March 31, 2021 or can be applied to eligible expenses incurred during the 2021 plan year (and through the corresponding grace period of March 15, 2022 for the Dependent Care FSA).
       
    • A temporary increase to the maximum age limit for qualified dependents under a Dependent Care FSA, for employees who enrolled in the 2020 Dependent Care FSA by January 31, 2020. Eligible employees may use any remaining funds in their 2020 Dependent Care FSA for qualifying expenses incurred for their dependent who turned age 13 during plan year 2020 up until that dependent turns age 14.

FAQ
When will these 2020 plan year FSA amendments take effect?

The Employee Benefits Division has been advised that HealthEquity WageWorks’ system will be configured to reflect the changes listed above the evening of March 17, 2021. Prior to this date, their system will still be configured for a $550 carryover limit for Health Care FSAs and a grace period only for Dependent Care FSAs.

Note: Remaining 2020 plan year balance information will display in HealthEquity WageWorks’ system as being part of the 2021 account balance after April 15, 2021.

How do the 2020 plan year rule amendments affect my remaining Health Care FSA balance?

Under recent IRS guidance, employers may allow all unspent funds from the 2020 Health Care FSA plan year to be carried over to the 2021 plan year. The State of Michigan has adopted this change. Therefore, any unused funds from your 2020 Health Care FSA will carry over to your 2021 Health Care FSA, rather than the previously established carryover maximum of up to $550.

This change will be configured in HealthEquity WageWorks’ system the evening of March 17, 2021. Prior to that date, their system will reflect the previously established carryover limit of $550 for Health Care FSAs.

Employees are eligible for this carry over to the 2021 plan year if their account was active on December 31, 2020 and either did not enroll for the 2021 plan year or are actively enrolled in the 2021 plan year. Funds may be applied to eligible 2020 expenses submitted by March 31, 2021 or may be applied to 2021 eligible expenses submitted by March 31, 2022.

Remaining 2020 plan year balance information will display in HealthEquity WageWorks’ system as being part of the 2021 account balance after April 15, 2021.

How do the 2020 plan year rule amendments affect my remaining Dependent Care FSA balance?

Under recent IRS guidance, employers may allow all unspent funds from the 2020 Dependent Care FSA plan year to be carried over to the 2021 plan year. The State of Michigan has adopted this change. Therefore, any unused funds from your 2020 Dependent Care FSA will carry over to your 2021 Dependent Care FSA. This change will be configured in HealthEquity WageWorks’ system the evening of March 17, 2021. Prior to that date, their system will reflect a grace period only for Dependent Care FSAs.

Employees are eligible for this carry over to the 2021 plan year if their account was active on December 31, 2020 and either did not enroll for the 2021 plan year or are actively enrolled in the 2021 plan year. Funds may be applied to:

  • Eligible 2020 expenses submitted by March 31, 2021, or
  • Eligible expenses incurred in 2021, or
  • Eligible expenses incurred during the corresponding 2021 grace period ending March 15, 2022, submitted by March 31, 2022.

Remaining 2020 plan year balance information will display in HealthEquity WageWorks’ system as being part of the 2021 account balance after April 15, 2021.

How do the 2020 plan year rule amendments affect the dependent age limit for Dependent Care FSAs?

Recent IRS guidance permits employers to temporarily increase the maximum age limit for qualified dependents covered under a Dependent Care FSA by one year. This specifically pertains to employees that enrolled in a 2020 Dependent Care FSA by January 31, 2020. The State of Michigan has adopted this change. Therefore, eligible employees may use any remaining funds in their 2020 Dependent Care FSA for qualifying expenses incurred for their dependent who turned age 13 during plan year 2020 up until that dependent turns age 14. Prior to this change, qualifying dependents could be covered under a Dependent Care FSA through age 12, until their 13th birthday.

Is my dependent who turned age 13 in plan year 2021 considered a qualified dependent under my Dependent Care FSA?

No. This temporary amendment only allows employees who were enrolled in a Dependent Care FSA for plan year 2020 by January 31, 2020 to use their unspent 2020 balance towards eligible expenses for dependents who turned age 13 during plan year 2020. Only then can unspent 2020 funds be used for that dependent, up until they turn age 14.

Below are two examples of how this amended rule applies:

  • Plan year 2020 Dependent Care FSA enrollee (who enrolled by January 31, 2020) has a dependent who turned age 13 on June 10, 2020. The employee can use their plan year 2020 balance for any eligible expenses for that dependent for plan year 2020 as well as through June 9, 2021. Effective June 10, 2021, that dependent is no longer eligible since they turn age 14 on that date.
     
  • Plan year 2020 Dependent Care FSA enrollee (who enrolled by January 31, 2020) has a dependent who turned age 12 during plan year 2020 and will turn age 13 on September 2, 2021. The employee cannot use their plan year 2020 balance for expenses incurred for that dependent beginning September 2, 2021 because that child did not turn age 13 during plan year 2020.
Is the amendment to the unlimited carryover rule for Health Care FSA and Dependent Care FSA permanent?

No. This is a temporary change in response to the COVID-19 pandemic and not a permanent implementation of unlimited carryover for Health Care FSAs or Dependent Care FSAs.

How does the run-out period work for the 2020 FSA plan year?

Anyone who had FSA eligible expenses that occurred in 2020 has until March 31, 2021 to submit claims to HealthEquity WageWorks for those expenses.

After March 31, 2021, expenses incurred in 2020 for either the Health Care FSA or Dependent Care FSA plans cannot be submitted. However, any remaining balance will be carried over to the 2021 account(s) to be used for eligible expenses that occur in 2021. This temporary unlimited carryover will be configured in HealthEquity WageWorks’ system the evening of March 17, 2021 and will visually display as being part of the 2021 account balance after April 15, 2021.

Do I have to do anything to initiate the temporary unlimited carryover for my 2020 plan year Health Care FSA or Dependent Care FSA?

No. There is no action required by you to initiate the carryover. Even if you did not re-enroll in a Health Care or Dependent Care FSA for the 2021 plan year, any 2020 plan year carryover funds will be available to you for the remainder of the 2021 plan year.

How does my Health Care FSA Card work in regard to the temporary unlimited carryover?

You can only use the HealthEquity WageWorks Health Care FSA Card to spend an amount of unlimited carryover up to the standard $550 carryover maximum through April 15, 2021. To access additional unlimited carryover funds over the $550 standard amount prior to April 15, 2021 will require use of another form of payment such as a Pay My Provider or a Pay Me Back request. As the unlimited carryover is a temporary amendment, the Card does not have the ability to allow more than $550 for carryover funds.

If I have questions about the 2020 FSA plan year amendments, who should I contact?

For additional information about the temporary 2020 plan year unlimited carryover rules, questions about the Dependent Care FSA’s temporary dependent age limit provisions, or how to file a claim for dependent care expenses for which you may now be eligible, please contact HealthEquity WageWorks at 877-924-3967.