IRS Releases Notice 2020-95: New, Flexible Guidance on Cafeteria Plans and ICHRAs

The IRS released Notice 2020-95 on May 12, 2020 detailing Notice 2020-29 and 2020-33.  The IRS provides new, relaxed rules for cafeteria plan elections. 

Notice 2020-29 provides increased flexibility guidance for mid-year employer sponsored health insurance coverage, Health FSA and DCAP cafeteria plan elections during 2020 calendar year.  Grace period and carryover period flexibility is detailed with application of unused amounts in Health FSAs to medical care expenses, as well as unused amounts in dependent care assistance programs through December 31, 2020. Employees may be permitted to apply unused amounts to pay or reimburse medical care or dependent care expenses incurred during that same time frame. 

Notice 2020-33 If there are amounts remaining in a Health HSA that may be carried over, this notice increases the maximum $500 carryover amount for a plan year to an amount equal to 20% of a maximum salary reduction contribution under Code Section 125(i) for that plan year. For 2020, this limit is $2750. The carryover limit for 2020 is $550. 

This notice also provides the ability of an Individual Coverage HRA (“ICHRA”), or Cafeteria plan, to reimburse individual insurance policy premium expenses incurred prior to the beginning of the plan year for coverage provided during said plan year. An ICHRA with a calendar year plan year may immediately reimburse a substantiated premium for health insurance coverage that begins on 1/1 of that plan year, even if the covered individual paid the premium for the coverage prior to the first day of the plan year.

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