Under what circumstances can employees make midyear election changes to their health Flexible Spending Account?

January 6, 2021
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Editor's Note: Internal Revenue Service (IRS) notices 2020-29, 2020-33, and 2021-15 provide for increased flexibility with respect to mid-year elections, carryovers and grace periods under a section 125 cafeteria plan during calendar year 2020 and 2021 due to COVID-19. The notices apply to employer sponsored health coverage, health flexible spending arrangements (health FSAs), health savings accounts (HSAs,) individual coverage health reimbursement arrangements (ICHRAs) and dependent care assistance programs (DCAPs).  


Section 125 of the Internal Revenue Code governs midyear election changes employees may be permitted to make to their health care FSAs. Status change events allowed by the IRS are:

  • Legal marital status. Events that change an employee's legal marital status, including marriage, death of a spouse, divorce, legal separation and annulment.
  • Number of dependents. Events that change an employee's number of dependents, including birth, death, adoption and placement for adoption.
  • Employment status. Any of the following events that change the employment status of the employee, the employee's spouse or the employee's dependent: a termination or commencement of employment, a strike or lockout, a commencement of or return from an unpaid leave of absence and a change in worksite.
  • Dependent satisfies or ceases to satisfy eligibility requirements. Events that cause an employee's dependent to satisfy or cease to satisfy eligibility requirements for coverage because of attainment of a certain age, student status or any similar circumstance.
  • Residence. A change in the place of residence of the employee, spouse or dependent.
  • Adoption assistance. For purposes of adoption assistance provided through a cafeteria plan, the commencement or termination of an adoption proceeding.
  • Entitlement to Medicare or Medicaid. If an employee, spouse or dependent becomes entitled to Medicare or Medicaid, the employee may make a prospective election change to cancel or reduce coverage of self, spouse or dependent. In addition, if an employee, spouse or dependent who has been entitled to such coverage under Medicare or Medicaid loses eligibility for such coverage, the employee may commence or increase coverage of self, spouse or dependent.
  • Judgment, decree or order. A judgment, decree or order resulting from a divorce, legal separation, annulment or change in legal custody, including a qualified medical child support order that requires health coverage for an employee's child or for a foster child who is a dependent of the employee.
  • Special requirements relating to the Family and Medical Leave Act (FMLA). An employee taking leave under the FMLA may revoke an existing election and make another election for the remaining portion of the period of coverage.

A plan may adopt all, some or none of the Internal Revenue Service (IRS) status change events. The IRS specifies that election changes during the plan year must be on account of and consistent with the eligible change in status. An example would be decreasing the FSA contribution amount because of a legal separation or divorce.

Other events that may allow an employee to make a health care FSA election change outside of open enrollment are included in the HIPAA Special Enrollment provisions.

 




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