Why isn't my FSA Carryover happening?
April 22, 2021 5:51 PM
My company offers a Healthcare FSA benefit, which I always use to almost the max. In 2020 I had some funds left over and chose to carry those in to 2021. Now my HSA administrator is saying that the "IRS Runout Period" has been extended to the end of the year and my funds won't carry over until then. Huh? This makes no sense.
I was under the impression that having a remaining 2020 balance under the limit (for us, $550) would be carried automatically into 2021. When the HSA debit card bounced at the dentist the other day (big fun!), I asked started making calls.
The HSA plan administrator says the carryover date was extended so I can't access the funds until that happens.
My company's HR replied with this response, which doesn't make sense to me:
Does anyone with some HR/IRS/finance experience understand the recent rule changes and why this would happen? Or is my company misreading the rules?
I was under the impression that having a remaining 2020 balance under the limit (for us, $550) would be carried automatically into 2021. When the HSA debit card bounced at the dentist the other day (big fun!), I asked started making calls.
The HSA plan administrator says the carryover date was extended so I can't access the funds until that happens.
My company's HR replied with this response, which doesn't make sense to me:
"This IRS mandatory extension means that employees will continue to have access to 2020 FSA funds until 12/31/2021 (i.e. Employees will have until 12/31/2021 to submit Date of Service claims for 1/1/2020 thru 12/31/2020). This also means that all 2020 FSA carryover will be delayed until 1/15/2022 (assuming the IRS doesn’t extend the runout again)."All the congressional press releases and IRS statements point to this notion of "we want you to be able to use those 2020 funds because we know COVID delayed things for everyone". But why would they be actually locking me out of the money until 2022? I've spent all of the 2021 funds now and the balance for this year is $0. I'm in FSA limbo, it appears.
Does anyone with some HR/IRS/finance experience understand the recent rule changes and why this would happen? Or is my company misreading the rules?
Sorry for posting twice in a row, but this section is even more relevant. Again, the IRS has simply provided flexibility but if your company doesn't amend their plan, they don't have to take advantage of this flexibility (though I have no idea why they wouldn't want to).
"Thus, an employer, in its discretion, may amend one or more of its § 125 cafeteria plans to permit employees to apply any unused amounts remaining in a health FSA or a dependent care assistance program as of the end of a plan year ending in 2020 or 2021 to reimburse expenses incurred for the same qualified benefit (medical care or dependent care) up to 12 months after the end of the plan year. For example, if an employer sponsored a calendar year § 125 cafeteria plan in 2020 with a health FSA, the employer may amend the plan to permit employees to apply the entire unused amount remaining in their health FSAs as of December 31, 2020, to reimburse employees for medical care expenses incurred through December 31, 2021."
posted by dngrangl at 8:11 PM on April 22, 2021
"Thus, an employer, in its discretion, may amend one or more of its § 125 cafeteria plans to permit employees to apply any unused amounts remaining in a health FSA or a dependent care assistance program as of the end of a plan year ending in 2020 or 2021 to reimburse expenses incurred for the same qualified benefit (medical care or dependent care) up to 12 months after the end of the plan year. For example, if an employer sponsored a calendar year § 125 cafeteria plan in 2020 with a health FSA, the employer may amend the plan to permit employees to apply the entire unused amount remaining in their health FSAs as of December 31, 2020, to reimburse employees for medical care expenses incurred through December 31, 2021."
posted by dngrangl at 8:11 PM on April 22, 2021
For our FSA plan, accessing rollover funds only happens when you have used all of the current year funds first. The plans try really hard to make sure they might get to keep the rollover. This was me last year. 2019 funds rolled over, but I had to spend all of 2020's before it tapped the 2019 money. Because I bought 2 pairs of glasses and they added OTC drugs, I was able to use it all.
posted by XtineHutch at 4:51 AM on April 23, 2021
posted by XtineHutch at 4:51 AM on April 23, 2021
Thanks, XtineHutch! I waited until all of 2021 was spent and the purchases cleared, and now the 2020 funds are available. I kind of wish our company had told us this.
posted by JoeZydeco at 6:47 PM on May 4, 2021
posted by JoeZydeco at 6:47 PM on May 4, 2021
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"For example, if an employer sponsored a calendar year § 125 cafeteria plan in 2020 with a health FSA that provides for a $550 carryover, the employer may amend the plan to carry over the entire unused amount remaining in an employee’s health FSA as of December 31, 2020, to the 2021 plan year (even if that amount exceeds $550). The employer also may amend the plan to carry over the entire unused amount remaining in an employee’s health FSA as of December 31, 2021, to the 2022 plan year. This relief applies to all health FSAs, including HSA-compatible health FSAs, and also applies to all dependent care assistance programs."
What this tells me is that your employer COULD allow you to use your 2020 carryover on 2021 expenses, but either hasn't amended their plan, isn't aware that they could, or there is some confusion from the HR department.
They aren't required to offer this - the IRS simply gave them the option. Here's a link to the IRS Notice 2021-15. https://www.irs.gov/pub/irs-drop/n-21-15.pdf
posted by dngrangl at 8:08 PM on April 22, 2021