When people planned their household budgets and decided last year how much of their pretax wages to put into a flexible spending account to pay for things like child care or health, they didn’t anticipate the economic upheaval that came with the coronavirus pandemic.
In May the IRS decided it would try to help by loosening some of the rules around how much of the money can be spent.
Normally you would be stuck with the choice of spending $5,000 on health or child care. But now the IRS says it will allow workers to add or drop benefits for the remainder of 2020, as long as their employer agrees.
Certified Public Accountant Alan Clavette explains.
“You generally have to make a decision about how you allocate your money before Dec. 31 in the year before the benefits start,” said Alan Clavette, a certified public accountant.
Family budgets were generally predictable.
“Now with COVID-19 happening the world is upside down,” Clavette said. “People's plans have changed. Child care may be out the window because your child care provider is closed. Or you have a situation where you’re an essential worker and you had to work even more hours and now you need even more child care.”
Or maybe you have been sick and you have a lot of unreimbursed medical expenses.
“For this year only they realize that things have really changed for people and it’s really unfair in this situation to have money allocated in various buckets of benefits that you may not be able to use,” Clavette said. “And it’s lost money. So the IRS has basically put out the notice that says employers are now allowed to have their employees make all new decisions.”
The only catch is that employers have to agree to allow the reallocation.
“HR Departments in most of these companies are probably scrambling right now to try to figure out how to do this,” Clavette said.
For employees with these accounts, Clavette recommends reaching out to your human resources department and find out what new elections you can make because all the money will not roll over to next year.