In January we hosted a webinar and published a subsequent blog, How the Pandemic Affects FSAs and Dependent Care, and typical for this Pandemic, we now have updates for some of that information. Things are changing rapidly and e are working very hard to ensure you have the most current information possible, at all times.
During the webinars we presented a few weeks ago a question kept coming up over and over:"If an employer allows a roll-over of unused DCAP funds from 2020 to 2021 as allowed by the CAA-2021, does this reduce the maximum of $5,000 a participant can elect in 2021?"
Without further guidance from the IRS, participants should be aware they may not be able to spend more than the $5,000 on Dependent Care Assistance. Part of the confusion is the IRS did say the amount not used could be carried over to the next year, both for plan years ending in 2020 and 2021. Strangely, in regular years there is no carryover provision, but rather only a grace period option.
There is an argument that the Consolidated Appropriations Act, 2021 lumped DCAP with FSA, and typically with an FSA any carryover amount does not affect the maximum that can be elected. However, upon further review of the $5,000 maximum and the grace period, it's noted that even in normal times the amount used for the DCAP grace period plan was subtracted from the total $5,000. This is typically done when the participant fills out Form 1040 for tax purposes and is not something that employers always monitor. So, without further guidance from the IRS, participants should adjust their DCAP elections appropriately.
In May of 2020, the Department of Labor and the IRS set the "Outbreak Period" extending certain timeframes for employee benefits. The Outbreak Period was determined to be March 1, 2020, through 60 days after the end of the National emergency. At this time it is still unclear when the National emergency will end; nevertheless, under ERISA Section 518 and Code Section 7508A(b) the extension cannot exceed one year. This means the Outbreak Period COULD end as soon as February 28, 2021.
Unless these statutes are amended in any Coronavirus Relief legislation passed before February 28, all extensions will end and normal time periods will apply. Stay connected with us and we will make sure you have the most timely updates regarding the Outbreak Period and the National emergency.
ACA & Dependent Coverage
Finally, we want to share a quick reminder about ACA reporting for Applicable Large Employers. If you are an ALE, dependents MUST be covered by the health plan through the end of the month they reach age 26. They cannot be terminated mid-month. So, it does not matter if a dependent turns 26 on the 1st of the month or the 28th, they must be covered for that full month without termination.
Also, once they turn 26 and coverage is terminated the month following, this is a Qualifying Event for the dependent. Under the rules for a Qualifying Event, the dependent is eligible for COBRA coverage.
If you have any questions regarding these updates don't hesitate to reach out to us at Medcom. We are always here to provide assistance and guidance! Stay connected through our social channels for the next updates regarding the Pandemic, COBRA, the Outbreak Period, and more.