American Rescue Plan Act Results in Expanded Flexible Spending Account Program (for 2021 only)
Edward A. Zurndorfer-
The American Rescue Plan Act (ARPA) passage in March 2021 has resulted in a temporary expansion of the dependent care flexible spending account (DCFSA) program that many employers (including the federal government) offer to their employees. Since 2003, federal employees have been eligible to participate in a dependent care flexible spending account and in a health care flexible spending account program through the Office of Personnel Management (OPM) sponsored- program called “FSAFEDS”. In February 2021, the IRS provided guidance related to flexibilities and additional relief with respect to mid-year health coverage elections. This guidance affected those employees who participate in the FSAFEDS Health Care Flexible Spending Account (HCFSA) and the Limited Expense Health Care Flexible Spending Account (LEX HCFSA). The Consolidated Appropriations Act (CAA) of 2020 passage in December 2020 resulted in additional flexibilities for cafeteria plans both in 2020 and 2021.
This column discusses the expansion of the DCFSA and additional flexibilities for the HCFSA, LEX HCFSA, and DCFSA programs and what they mean to federal employees. It needs to be emphasized that the expansion of the DCSFA program is for 2021 only and the expanded flexibilities in the DCFSA, HCSFA and LEX HCFSA programs are for 2021 only.
Relief Provided by the Consolidated Appropriate Act (CAA) of 2020 and the ARPA of 2021 as Adopted by FSAFEDS
· As a result of the CAA passage in December 2020, FSAFEDS is allowing unlimited carryover of unused FSA funds for re-enrolled HCFSA and LEX HCFSA participants for both the 2020 and 2021 years. But if an employee did not re-enroll during the last FSAFEDS “open season” held November-early December 2020 for the HCFSA or LEXHCFSA, they did not have access to any 2020 carryover funds to be reimbursed for eligible expenses incurred during 2021.
· FSAFEDS is extending the grace period for all DCFSA participants for the 2020 and 2021 plan years. The 2020 grace period is extended through December 31, 2021, and the 2021 grace period is extended through December 31, 2022.
· The 2021 DCFSA maximum payroll deduction election amount has been increased to $10,500 (from $5,000 in 2020), or $5,250 for married individuals filing separately.
· Current DCFSA participants who want to change the amount of their current election in their DCFSA may do so during the special enrollment period (see below) by logging into their online account and updating their elections.
· Mask and hand sanitizing wipes (with 60 percent plus alcohol base) expenses have been approved as eligible over the counter HCFSA expenses.
Special Enrollment Period (SEP)
· Employees who did not enroll or re-enroll during the last FSAFEDS “open season” (held between Nov. 8, 2020 and Dec. 14, 2020) may enroll or re-enroll, and currently enrolled FSAFEDS participants may increase or decrease their current HCFSA, LEX HCFSA and DCFSA payroll allotments, during the Special Enrollment Period (SEP) which will be held from June 1, 2021 to June 30, 2021. This special 30-day special FSAFEDS “open season” will give employees who did not enroll or re-enroll during last fall’s FSAFEDS “open season” the opportunity to enroll for 2021. For employees who were enrolled during 2020 but did not re-enroll for 2021, the SEP gives them the opportunity to gain access to available 2020 unused FSAFEDS funds to be used during the rest of 2021.
· Current FSA participants can increase or decrease election during the SEP by visiting www.fsafeds.com and choosing “2021 Special Enrollment Period” from the “Enroll in a Plan” menu at the top of the home page and follow the instructions.
· Employees who want to enroll for the first time for 2021 should go to www.fsafeds.com, select “2021 Special Enrollment Period” under the “Enroll in a Plan” menu at the top of the homepage, and follow the instructions. They must do so between June 1 and June 30, 2021.
Taking Advantage of the Relief Provisions Provided by the CAA/ARPA
· The unlimited carryover amount for HCFSA and LEXFSA, as well as the extended grace period for the DCFSA will be automatically applied to an employee’s account for allowable expenses incurred during 2021. No action is needed.
· To take advantage of the age 14 extension for eligible reimbursed DCFSA expenses and to take advantage of the HCFSA to pay for masks and hand sanitizing wipes, employees should simply submit their claims as normal. No change is required.
The following examples illustrate how employees can take advantage of the relief provided by the CAA/ARPA:
Example 1. Chris, a federal employee during 2020 and 2021 was enrolled in the HCFSA during 2020 but did not re-enroll in the HCFSA during the HCFSA open season, November 8, 2020 – December 14, 2020. As of the end of December 2020, Chris had a $1,500 balance in his HCFSA. As Chris has incurred some out-of-pocket medical and dental expenses during the first half of 2021, Chris decides to re-enroll in the HCFSA during “Special Enrollment Period” during June 2021 by taking the following steps:
1. He goes to www.fsafeds.com and selects “2021 Special Enrollment Period” under the “Enroll in a Plan” menu at the top of the home page and follows the instructions.
2. Chris chooses the “2021 Special Enrollment Period – New Account” event type when prompted.
3. The election will be effective on the first day of the following pay period, as determined by Chris’ agency’s payroll schedule. Expenses incurred on the effective date and later are eligible for reimbursement.
4. Chris’ entire previous balance of $1,500 did not carry over to 2021. With Chris’ enrollment during the SEP, Chris has $1,500 in his HCFSA available to reimburse Chris for qualified medical expenses that Chris incurs beginning on their effective date (sometime in early July 2021) through December 31, 2021.
5. If Chris re-enrolls in the HCFSA for 2022, any remaining balance from the 2021 plan year – not just the current balance set by law of $550 – will carry over to 2022. But Chris must remember to re-enroll in the HCFSA for 2022 during the open season in early November through early December 2021.
Example 2. Barbara was enrolled in a DCFSA during 2020 but did not re-enroll for 2021. She had a leftover DCFSA balance of $2,500 as of December 31, 2020. The grace period to spend 2020 DCFSA funds has been extended through December 31, 2021. This means that Barbara can continue to incur DCFSA expenses and get reimbursed from her DCFSA through the end of 2021. Barbara need not take any action during the SEP June 1 through June 30, 2021.
Example 3. William re-enrolled in a 2021 account and his LEX HCFSA during the 2020 FSAFEDS open season in November 2020. Due to some sudden unexpected expenses, William wants to make changes to his current 2021 election. William can increase his LEX HCFSA allotment during the SEP held during June 2021. He must go to www.fsafeds.com and choose “2021 Special Enrollment Period” from the “Enroll in a Plan” menu located at the top of the home page and follows the instructions: (1) choose the “2021 Special Enrollment Period – Increase/decrease” event when prompted; (2) the new election will be effective retroactively to the most recent effective date for 2021. In this case, it will be effective January 1, 2021 because the participant enrolled during the last open season; and (3) the new payroll allotment amount is effective prospectively to the salary withholding on the first pay period after processing by FSAFEDS.
Edward A. Zurndorfer is a Certified Financial Planner, Chartered Life Underwriter, Chartered Financial Consultant, Chartered Federal Employee Benefits Consultant, Certified Employees Benefits Specialist and IRS Enrolled Agent in Silver Spring, MD. Tax planning, Federal employee benefits, retirement and insurance consulting services offered through EZ Accounting and Financial Services, and EZ Federal Benefits Seminars, located at 833 Bromley Street – Suite A, Silver Spring, MD 20902-3019 and telephone number 301-681-1652. Raymond James is not affiliated with and does not endorse the opinions or services of Edward A. Zurndorfer or EZ Accounting and Financial Services. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. While the employees of Serving Those, Who Serve are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.