Cafeteria plans, HDHPs get COVID-19 relief

Tax Hot Topics newsletterThe IRS issued Notice 2020-29 to provide temporary flexibility for Section 125 cafeteria plans and to clarify relief provided with respect to high deductible health plans (HDHPs). The guidance comes in response to the nature of the public health emergency posed by COVID-19 and unanticipated changes in the need for medical or dependent care.

The notice permits employees who are eligible to make salary reduction contributions under a cafeteria plan to make certain prospective mid-year election changes during calendar year 2020. For employer-sponsored health coverage (both insured and self-insured plans), an employer may allow employees to make the following election changes with respect to their cafeteria plan:
  • Make a new election on a prospective basis if the employee initially declined to elect employer-sponsored health coverage
  • Revoke an existing election and make a new election to enroll in different health coverage sponsored by the same employer on a prospective basis
  • Revoke an existing election on a prospective basis, provided that the employee attests in writing that the employee is enrolled, or immediately will enroll, in other health coverage not sponsored by the employer

Employees may also revoke an election, make a new election, or decrease or increase an existing election under a cafeteria plan with respect to a health flexible spending arrangement (FSA), including a limited purpose health FSA, or a dependent care assistance program on a prospective basis.

A cafeteria plan may permit employees to apply unused amounts remaining in a health FSA, including a limited purpose health FSA, or a dependent care assistance program as of the end of a grace period or plan year ending in 2020 to pay or reimburse expenses incurred for the same qualified benefits through Dec. 31, 2020.

The notice also clarifies that the relief provided in Notice 2020-15 regarding HDHPs and COVID-19-related expenses and the exemption for telehealth services under the Coronavirus Aid, Relief, and Economic Security (CARES) Act may be applied retroactively to Jan. 1, 2020.

The relief in Notice 2020-29 may be applied from Jan. 1, 2020, through Dec. 31, 2020. Employers must adopt plan amendments in order to utilize this relief. An amendment for the 2020 plan year must be adopted on or before Dec. 31, 2021, and may be effective retroactively to Jan. 1, 2020.

Jeff Martin
Partner, Washington National Tax Office
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Keith Mong
Managing Director
Washington National Tax Office
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James Sanchez
Senior Associate
Washington National Tax Office
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