The Consolidated Appropriations Act, 2021, was signed into law on December 27, 2020. This COVID relief bill includes several items that impact medical flexible spending accounts (FSAs) and dependent care assistant plan (DCAP) accounts.
Most of these changes are temporary – only lasting through 2022 – but the enhancements may affect how you choose to administer your accounts for the year to come. Here are some of new options to consider with FSA and DCAP:
DCAP/FSA Carryover and Grace Period Extension
The new legislation allows plans to permit FSAs and/or DCAPs to carryover all unused amounts from 2020 to 2021 and from 2021 to 2022.
Similarly, plans may permit a 12-month grace period for unused benefits for plan years ending in 2020 or 2021. The grace period gives employees an opportunity to spend down their balances from the previous plan year on expenses made in the new year.
Plans are also given the option to allow medical FSA participants who terminate during the 2020 or 2021 plan year to spend down their unused balances for expenses incurred through the end of the plan year in which the termination occurred.
DCAP Age Increase
During an average year, employees can use their DCAP on care for their dependents under 13 years old (or over with letter of medical necessity.) The Consolidated Appropriations Act has increased the maximum age of eligible dependents by one year – which would allow employees to use their DCAP to pay for dependent care up to the age of 14.
DCAP/FSA Election Changes
Another new option for plans is to allow a prospective change in election amounts for plan years ending in 2021 without a corresponding change in status event.
This legislation is not mandatory; these are group-level choices. Groups are able to amend their plan document with the recent COVID Relief legislation until Dec. 31, 2022.
Interested in learning more?
Watch our webinar featuring Ryan McArton, Chief Compliance Officer, who discussed the bill and shared what employers should consider before choosing to amend their plan.