The Internal Revenue Service released guidance of temporary changes to section 125 cafeteria plans. These changes extend the claims period for health flexible spending arrangements (FSAs) and dependent care assistance programs and allow taxpayers to make mid-year changes.
The guidance addresses unanticipated changes in expenses because of the 2019 Novel Coronavirus (COVID-19) pandemic and provides that previously provided temporary relief for high deductible health plans may be applied retroactively to January 1, 2020, and it also increases for inflation the $500 permitted carryover amount for health FSAs to $550, according to an IRS news release.
Notice 2020-29 provides greater flexibility for taxpayers by:
- extending claims periods for taxpayers to apply unused amounts remaining in a health FSA or dependent care assistance program for expenses incurred for those same qualified benefits through December 31, 2020.
- expanding the ability of taxpayers to make mid-year elections for health coverage, health FSAs, and dependent care assistance programs, allowing them to respond to changes in needs as a result of the COVID-19 pandemic.
- applying earlier relief for high deductible health plans to cover expenses related to COVID-19, and a temporary exemption for telehealth services retroactively to January 1, 2020.
Notice 2020-33 responds to Executive Order 13877, which directs the Secretary of the Treasury to “issue guidance to increase the amount of funds that can carry over without penalty at the end of the year for flexible spending arrangements.” The notice increases the limit for unused health FSA carryover amounts from $500, to a maximum of $550, as adjusted annually for inflation, according to the news release.
People First Initiative Provides Relief to Taxpayers
In other taxpayer news and due to COVID-19, the IRS is providing relief on a variety of issues as part of the People First Initiative. The IRS is modifying certain activities through the filing and payment deadline, Wednesday, July 15, 2020. Here’s what people need to know about relief related to IRS exams or audits, according to a news release.
Field, office, and correspondence audits – Generally, the IRS won’t start a new field, office, and correspondence audits. The agency will continue to work refund claims, where possible, without in-person contact.
However, the IRS may start new audits if needed to preserve the statute of limitations.
- In-person meetings – In-person meetings for current field and office audits are on hold. However, examiners will continue their work remotely, where possible. Taxpayers should respond to any requests for information during this period, if possible.
- Unique situations – Corporations and businesses may want to begin a previously scheduled audit while people and records are available. When it’s in the best interest of both parties and appropriate people are available, the IRS may move forward with an audit. COVID-19 developments could slow activities.
- General requests for information –Taxpayers should reply to all IRS correspondence if requested.
Earned income tax credit and wage verification reviews – Taxpayers have until July 15, 2020, to respond to the IRS and verify that they qualify for the earned income tax credit or to verify their income. These taxpayers should submit all requested information. If they can’t contact the agency and explain why the information is not available, the IRS won’t deny these credits for a failure to provide information until July 15, 2020.
Independent Office of Appeals – Appeals employees will continue to work their cases. They aren’t currently holding in-person meetings, but conferences may be held by phone or video. Taxpayers should respond to any requests for information form the Independent Office of Appeals.
Statute of limitations – The IRS will continue to protect all statutes of limitations. If statute expirations might be jeopardized during this period, taxpayers are encouraged to cooperate in extending these statutes. Otherwise, the IRS will issue Statutory Notices of Deficiency and pursue similar actions to protect the interests of the government.