Employee Benefits Compliance, COVID-19

IRS Notice 2020-33 Increases FSA Carryover Limits and Allows ICHRA Individual Premium Reimbursement Before Plan Year

On May 14, 2020, the Internal Revenue Service (IRS) released Notice 2020-33, along with temporary cafeteria plan change in status rules. These new rules allow for reimbursement of qualified medical expenses by a Dependent or Health Flexible Spending Accounts (herein, respectively, DFSA and HFSA) through the 2020 year – unrelated to the COVID-19 crisis (unlike Notice 2020-29 cafeteria plan rule expansions released the same day- see the Leavitt Group article). Additionally, new rules apply to employers with Individual Coverage Health Reimbursement Arrangements (ICHRA) allowing reimbursement of individual insurance premiums by the ICHRA even if the premium was paid before the plan year.  These rules are effective retroactively (optionally) to January 1, 2020 and are effective through December 31, 2020. Employers have until December 31, 2021 to amend their plan documents to reflect any changes they adopt as a result of these new permissions.

Dependent & Health Flexible Spending Accounts

Under current law, an employer may elect to allow up to $500 of unused DFSA and/or HFSA funds to carryover into the next plan year (meeting certain requirements – see the Leavitt Group article). This new Notice increases the maximum by $50 to $550. In future years, employers can expect 20% of the FSA limit (in 2020 that was $2,750; the limit has yet to be set for 2021 and is usually set in the fall) to be offered as a carryover limit, according to methodology.

Individual Coverage Health Reimbursement Arrangements

Individual Coverage HRA plans are offered by the employer, along-side, and intended to coordinate with, other individual minimum essential coverage. The ICHRA funds may be used to purchase the individual health coverage or Medicare.

Clarification was provided to assist in the implementation of the ICHRAs. The Notice explains the general rule that deferred compensation rules do not allow payment reimbursement for medical expenses incurred outside of the plan year. When the care is provided is usually when the expense is incurred, and not when it is billed or paid. However, in the case of ICHRA, special administrative issues arise when an employee must pay, prior to the plan year, all of part of the premium for the individual medical coverage or Medicare. Therefore, this Notice provides a remedy by allowing the plan to treat an expenses for each health care premium for medical coverage as incurred on:

  • the first day of each month of coverage on a pro rata basis
  • the first day of the period of coverage, or
  • the date the premium is paid.

For example: An individual with a ICHRA spanning a calendar plan year could have their premium reimbursed for the entire year even if they already paid the premium prior of the first day of the plan year.


These rules apply to a limited set of employers as ICHRA rules are restrictive with requirements for plan sponsors.  It is more likely that employers are affected by the extended FSA reimbursement period. Employers are reminded that these rules are not mandates, rather, they permit the employer to select these options. If employers choose to adopt the most expansive list of permissions, they should ensure they update their plan documents (usually in the form of an amendment or Summary of Material Modification) by the end of 2021. Until then, it is advisable to provide some form of notice so that employees can make changes where necessary to take advantage of these new permissions since these are temporary rules – available until December 31, 2020. It is always advisable to document distribution of any notices in order to show good faith compliance with these ever-changing rules.

It is expected that further clarifications will come from the IRS to address any administrative issues arising from these new rules. The Leavitt Group will be sure to notify you of any new guidance. Be sure you are signed up for our news alerts. Subscribe here!