Benefits and Compensation

New Law Allows Employers to Make Temporary Changes to FSAs

On December 27, 2020, President Donald Trump signed the Economic Aid to Hard Hit Small Businesses, Nonprofits and Venues Act into law. It makes temporary changes to rules governing health and dependent care flexible spending accounts (FSAs) and allows employers that sponsor the plans to provide employees with more time to use the benefits. Here is a summary of the temporary provisions.



For plan years ending in 2020, employers may permit participants to carry over any unused benefits or contributions remaining in their FSA to the subsequent plan year without limitation. For example, if the plan year ended on December 31, 2020, you may permit participants to carry over any unused balance to December 31, 2021. Before the Act’s passage, carryover amounts were allowed only for health FSAs and were limited to $550.

Grace Periods

Employers may extend the grace periods for plan years ending in 2020 or 2021 for up to 12 months after the end of the plan year for both health and dependent care FSAs.


You may permit employees who cease participating in health FSAs during the 2020 or 2021 calendar year to continue to receive reimbursements from unused benefits through the end of the plan year in which their participation ceases including any grace period.

Change Elections

You may allow employees to prospectively change their elections midyear for health and dependent care FSAs for a plan year ending in 2021, subject to the maximum contribution amount allowed by law.

Dependent Care

For dependent care FSAs, the age for qualifying dependents whose care can be paid for was raised to age 13 but only for plans with an enrollment period ending on or before January 31, 2020, and only for employees who had dependents who turned 13 during that plan year (or the subsequent plan year if the employee is carrying over amounts to the subsequent plan year). Only the amounts for the plan year whose enrollment period ended on or before January 31, 2020, can be used for the dependents turning 13 during that time.

For example, an employee participating in a calendar year plan could use her 2020 dependent care FSA balance for care provided to her child who turns 13 in 2020. If the employee didn’t use her entire balance in 2020 and the plan implements the temporary change allowing a carryover of the unused balance to the 2021 plan year, she could use the 2020 amounts for any child who turns 13 in 2021 also. (Note, as worded in the Act, this particular change could be interpreted as being required, and you should monitor IRS guidance regarding its implementation.)


Employers should consider the implications the changes may have on plan administration and monitor any regulatory guidance about its implementation.

If you decide to implement the changes, you’re required to amend the plans no later than the last day of the first calendar year beginning after the end of the plan year in which the amendment is effective. For calendar-year plans, you must amend them no later than December 31, 2021. For those of you with noncalendar-year plans who want to implement the changes for your current plan years, the amendments would need to be adopted by December 31, 2022.

Those of you with noncalendar-year plans may find adopting retroactive changes for plan years ending in 2020 to be administratively challenging. If you’d like to adopt the changes for a plan year that ended in 2020, the amendment needs to be adopted by December 31, 2021.

Big Picture

Additional guidance on implementing the changes is expected from the IRS. Other than the possible exception noted above for the limited change in the definition of “dependent” for dependent care FSAs, the changes are permissive, meaning you aren’t required to implement them.

Susan J. Freed is an attorney with Davis Brown Law Firm in Des Moines, Iowa. You can reach her at