The Internal Revenue Service (IRS) has issued Notice 2021-15, which provides guidance on the application of special temporary rules for health flexible spending arrangements (FSAs) and dependent care assistance programs administered as section 125 cafeteria plans. This temporary relief was recently enacted under section 214 of the Taxpayer Certainty and Disaster Tax Relief Act.

The IRS explains that Notice 2021-15 provides flexibility for employers in the following areas related to health FSAs and dependent care assistance:

• Provides flexibility for the carryover of unused amounts from the 2020 and 2021 plan years;
• Provides flexibility to extend the permissible period for incurring claims for plan years ending in 2020 and 2021;
• Provides flexibility to adopt a special rule regarding post-termination reimbursements from health FSAs;
• Provides flexibility for a special claims period and carryover rule for dependent care assistance programs when a dependent "ages out" during the COVID-19 public health emergency; and
• Allows certain mid-year election changes for health FSAs and dependent care assistance programs for plan years ending in 2021.

The IRS also notes that the guidance allows a cafeteria plan to permit employees who are eligible to make salary reduction contributions under the plan to:

• 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; and
• 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. 

In addition, Notice 2021-15 provides more time to implement "the expansion under the CARES Act of allowed expenses for health FSAs and health reimbursement arrangements to include over-the-counter drugs without prescriptions and menstrual care products," the IRS says.

• 34-page text of Notice 2021-15
• IRS press release

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