IRS Issues Guidance on Consolidated Appropriations Act (CAA) & Impacts on Healthcare & Dependent Care FSAs

February 26, 2021

The IRS has issued Notice 2021-15, providing additional guidance to the Consolidated Appropriations Act (CAA) enacted on December 27, 2020.

The CAA offers flexibility to employee benefit plans offering healthcare FSAs and dependent care FSAs for 2021 and 2022 plan years:

  • Provides carryover of unused funds in a healthcare, limited healthcare, and dependent care FSA into the subsequent plan year from the 2020 and 2021 plan years.
  • Allows healthcare, limited healthcare, and dependent care FSAs to offer a grace period extension up to 12 months after the end of the plan year.
  • Permits mid-year election changes by plan participants of healthcare and dependent care FSAs for plan years ending in 2021 without a change in status.
  • Permits post-termination reimbursements through the end of the plan year that participation ceased for healthcare and limited healthcare FSAs.
  • Creates a special rule for dependent care FSAs, allowing the plan to substitute "under age 14" for "under age 13" as the maximum age for qualifying dependents.

IRS Notice 2021-15 provides additional relief that allows employers to retroactively amend their plans. It also provides details on interaction with COBRA continuation coverage and timing of plan amendments.

View the IRS Notice 2021-15 Guidance on CAA FSAs 

These new provisions are discretionary and not mandatory to the plan sponsor or employer. There are also compliance considerations for interaction with High Deductible Health Plan (HDHP)-eligible HSAs, elections or reimbursements prior to the adoption of any plan amendment, and notification to plan participants in a timely manner. 

Please reach out to your Chard Snyder Client Relationship Manager with questions and be aware that not all specific plan practices are addressed in the regulatory guidance. We advise you to consult your legal and tax experts prior to implementing any changes based on this bill and its requirements.

To read the CAA text that addresses the Healthcare & Dependent Care FSA provisions, click here.