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IRS 2020 FSA Plan Year Rule Change

Intro

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.