Ask Penny: When can I make mid-year Flexible Spending Account (FSA) contribution changes?

August 31, 2020

Earlier this year, the IRS provided increased flexibility allowing for mid-year changes to Flexible Spending Accounts (FSAs) and other benefit plans due to the COVID-19 crisis. Previously, mid-year plan changes were only allowed following a qualifying life event such as marriage or the birth of a child. Now a qualifying event may not be necessary, but there is one caveat: FSA mid-year changes are only available if your employer allows them. Here are a few next steps:

Consult your HR team

Your Human Resources department should be your first stop to inquire about changes in your company's benefits and whether there are plans to allow mid-year FSA changes for 2020. It’s ultimately in your employer's hands to make this decision.

If mid-year changes are allowed

If your employer did open up the option for FSA mid-year changes, you’ll need to consider a few things before proceeding:

1. Should I increase my contributions or withdraw funds?

One of the unique aspects of these mid-year changes is that the IRS now allows FSA users to either contribute more to their accounts to meet the 2020 contribution limit ($2,750) or withdraw funds for personal use (post-income taxes). Everyone's financial situation is unique, so do what is best for your bottom line.

2. Should I elect a new FSA or drop my current one?

The IRS now also permits those who had previously declined a FSA in 2020 to elect a mid-year FSA with these changes. If you have the option to add a FSA, now is a good time to explore eligible products, and ways you may be able to save money and reduce your taxable income. If you currently have a FSA and are considering dropping it, remember that FSAs reduce your taxable income and there are still plenty of ways to use your FSA funds this year.

3. What else should I consider?

You may want to estimate your qualified healthcare spending for the rest of 2020. Consider a full picture of your finances and plan out your future medical expenditures so you can accurately predict the right contribution for you and your dependents' needs.

You may have more flexibility with your FSA than ever before. Now is the right time to ask questions to understand your organization’s benefit plans for the rest of 2020.