Consolidated Appropriations Act of 2021: Changes for Cafeteria Plans

The IRS recently issued guidance on changes to certain cafeteria plans in 2021 and 2022, concerning Covid-19 impacts, that can be made by employers and employees

SC&H’s Key Takeaways 

  •  There is new flexibility as it relates to unused amounts from plan years ending in 2020 and 2021 
  • The Act allows for an extension of when claims can be submitted for qualifying expenses 
  • The Consolidated Appropriations Act (CAA) of 2021 provides for special post-termination reimbursement rules 
  • Mid-year election changes for health flexible spending accounts (FSAs) and dependent care assistance programs for plan years ending during 2021 are now permitted

IRS Notice 2021-15 outlines the many favorable options available to employees who, because of Covid-19 and the related economic and work environment, may benefit from making changes to various elections made relative to their employer-sponsored pre-tax cafeteria plans.  

Often, these benefits are subject to “use it or lose it” provisions, and elections cant be undone or amended once put in place. The CAA of 2021 provisions in this area will provide many employees relief from those restrictive rules.   

Specifically, employees can now: 

  • Make a new election on a prospective basis 
  • Revoke an existing election  
  • Carryover up to their full account balance from 2020
  • Allow carryovers from 2021 to 2022 

Employees must first determine if (and when) their plans will be amended. crucial element worth noting is that employers must amend their plans before employees can take advantage of these new favorable provisions.   

  Other Provisions 

  • The carryover period can extend up to 12 months, as opposed to 2.5 months 
  • Favorable changes are provided for former employees related to COBRA and usage of funds in their dependent care and/or medical expense accounts 

We will continue to keep you informed about additional updates or changes as they are released. In the meantime, visit our Coronavirus Resource Center for more important updates from the Congress and the IRS throughout 2021.