Mid-Year Changes to Health Coverage and Dependent Care Elections Permitted by IRS

The Internal Revenue Service (IRS) announced via Notice 2020-29 in May 2020 that it is allowing additional flexibility pertaining to mid-year elections during the 2020 calendar year under a Section (Sec.) 125 cafeteria plan for employer-sponsored health coverage, health flexible spending arrangements (FSA) and dependent care assistance programs.

New Guidelines

The usual guidelines do not permit changes to elections made under the Sec. 125 plan unless:

  • The changes are made prior to the start of the plan year,
  • There is an employee status change or
  • There is a considerable increase in the cost of coverage.

However, under the new guidelines, employers may allow employees to change their mid-year elections as many employees will not meet the usual standards for change.  For this reason, employers may allow employees to make the following changes regarding health coverage and flexible spending accounts (FSAs):

Health Coverage

  • Elect coverage if the employee initially declined coverage,
  • Cancel the existing election and enroll in another health plan provided by the same employer moving forward, or
  • Cancel the existing election provided the employee has enrolled or will immediately enroll in another health plan not provided by the employer (employee attestation should be in writing).


  • Elect participation, rescind participation or change current contribution to a health FSA moving forward or
  • Elect participation, rescind participation or change current contribution to a dependent FSA moving forward.

Increased Flexibility

For medical and dependent care FSA dollars that have not been used by December 31, 2020, employers may allow employees to pay or reimburse such expenses (incurred through December 31, 2020) beyond the usual grace period.

Further, telehealth and other remote healthcare services now qualify as reimbursable expenses under high deductible health plans (HDHPs).  These expenses may be retroactive to January 1, 2020.

Increased Carry Over

Unused monies remaining in a health FSA at the end of the plan year may be rolled over into the next plan year.  This limit has increased from $500 to $550.

Moreover, a health plan may repay individual health premiums experienced before the beginning of the plan year for health insurance provided throughout the plan year.  This increased flexibility will aid in fulfilling health reimbursement arrangements (HRAs).

Disclaimer: This communication is intended to provide general information on legislative COVID-19 relief measures as of the date of this communication and may reference information from reputable sources. Although our firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.