Personal Finance

IRS will allow for mid-year changes to health plans and flex spending accounts

Key Points
  • Because of the coronavirus crisis, the IRS has issued new guidelines allowing for mid-year changes to health plans.
  • Workers can also opt to put less money in a flexible spending account and keep more in their pocket during this time. 

Under ordinary circumstances, the opportunity to make changes to workplace health plans and flexible spending accounts happens only once a year.

However, new guidelines from the IRS allow workers to revisit those elections now in response to the coronavirus pandemic.

"I cannot think of a time when the IRS has been this flexible," said David Speier, managing director of benefits accounts at Willis Towers Watson.

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Employers can now let employees drop their health insurance if they have another option or sign up for insurance if they haven't already, without waiting until the usual fall enrollment period

Workers can also add family members to their current plan or switch to a different health insurance plan.

"This is important for individuals that were on a spouse or partner's plan and they lost their job due to Covid-19," said Chatrane Birbal, the director of policy engagement at the Society for Human Resource Management.

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Further, the guidance allows for changes to pretax flexible spending accounts and loosens the use-it-or-lose-it restrictions by increasing the "carryover" in spending accounts to $550, from $500, as well as extending the carryover period by six months.

That could free up a lot of cash considering that employees can contribute up to $2,750 for health care and $5,000 for dependent care this year.

Workers who are now skipping routine doctor visits, dental appointments or elective medical services may want to reduce the amount they are setting aside for health care.

In addition, parents working from home and caring for their kids can allocate less toward child-care services.

With after-school programs and daycare centers closed while shelter-in-place guidelines are in effect, "this is an opportunity to take back some of that money and have it in their pocket at this time," Birbal said.

This is an opportunity to take back some of that money and have it in their pocket.
Chatrane Birbal
SHRM’s Director of Policy Engagement

However, employees can only take advantage of these options if their employer allows it, which may come at additional costs and administrative hurdles.

Because of that, employers may evaluate these changes closely before deciding whether to implement them, Speier said, or put restrictions on the time frame.

"It's very important that there is communication going on between employers and employees," he added. "Employees should be looking out for that."

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