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IRS Again Addresses COVID-19 Relief Applicable to Dependent Care FSAs



IRS Information Letter 2020-0027 (Sept. 25, 2020)

Available at

The IRS has released another information letter responding to an inquiry regarding unused amounts in a participant’s dependent care flexible spending arrangement (FSA) account. The participant had unused amounts because his children did not attend summer camp due to COVID-19 and he did not expect to have additional childcare expenses for 2020. The participant asked whether the unused amounts could be paid to him.

Like the IRS’s previous response to a similar inquiry (see our Checkpoint article), the letter explains that IRS Notice 2020-29 permitted employers to amend their cafeteria plans to provide participants with increased flexibility to make midyear election changes on a prospective basis (see our Checkpoint article). The letter also specifies that the relief did not modify the rule that contributions to a dependent care FSA—including contributions made prior to a midyear election change— cannot be returned other than as reimbursement for dependent care expenses.

EBIA Comment: This letter was recently released to the public but was issued to the recipient last fall and predates recent legislation that provides additional relief for FSAs (see our Checkpoint article). Among other things, employers may now allow unused dependent care FSA amounts from a plan year ending in 2020 to be carried over to 2021—a feature that participants in this situation may find helpful if their employers implement that change. Nevertheless, the letter is another reminder that key cafeteria plan principles remain unaltered: Retroactive election changes are generally not permitted, and unused contributions must be forfeited subject to limited exceptions (e.g., for carryovers or a grace period) because cash-outs are not allowed. For more information, see EBIA’s Cafeteria Plans manual at Sections XIV.A.4 (“COVID-19-Related Election Change Relief for Calendar Year 2020”) and XVI.N (“Mandatory and Discretionary Claim-Related Extensions Due to COVID-19”). You may also be interested in our webinar “FSA Relief Under the Consolidated Appropriations Act, 2021” (recorded 2/3/2021).

Contributing Editors: EBIA Staff.

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