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Changes Made to Employer-Sponsored Section 125 Cafeteria Plans


The IRS has made a number of recent changes to the federal tax code because of the unanticipated expense-related changes resulting from the COVID-19 pandemic. For instance, a series of new regulations extends the claim filing period for taxpayers with high deductible health plans and also expands their ability to make mid-year elections for health coverage, dependent assistance, and health flexible spending arrangements (FSAs). To speak with an experienced Florida tax & IRS attorney about how these methods of relief could affect your own tax situation, please call our office or send us an online message today.

Elections Under a Section 124 Cafeteria Plan

Section 125 cafeteria plans are written plans sponsored by employers under which employees can choose from two benefits: cash or qualified benefits. Qualified benefits are any benefits that aren’t included when calculating an employee’s gross income, such as:

  • Employer-provided accident and health plans;
  • Health FSAs; and
  • Dependent care assistance programs.

Elections under these policies are generally irrevocable and must be made prior to the first of each year. Prior to the recent changes, the only exception to this rule allowed employees to revoke an election, but only if there had been significant changes in the cost of coverage or they had experienced a change in status.

Increased Flexibility

The IRS, in an effort to help with the confusion attending the 2019 pandemic, recently announced that it would be providing for increased flexibility for taxpayers who need to make mid-year elections under a section 125 cafeteria plan during 2020. For example, for mid-year elections made during 2020, employees who are eligible to make salary reduction contributions under a section 125 cafeteria plan sponsored by an employer are now permitted to:

  • Make a new election on an employer-sponsored health coverage plan, but only if the employee initial declined the coverage;
  • Revoke an existing election and make a new one to enroll in different health care coverage sponsored by their employer; or
  • Revoke an existing election, but only if they agree to attest in writing that they are enrolled or will immediately be enrolled in a plan sponsored by a non-employer.

Similarly, taxpayers are also now permitted to revoke an election or make a new one on a health FSA or dependent care assistance program even after the deadline has passed. Finally, any unused amounts remaining in a health FSA or dependent care assistance program under a cafeteria plan that ends in 2020 can be used by employees to pay or reimburse medical care expenses.

Consult with an Experienced Florida Tax Attorney

The IRS has made a number of changes in response to the effects of the COVID-19 pandemic. For help navigating these changes, please call 386-490-9949 and a member of our legal team will help you schedule a one-on-one consultation with dedicated tax attorney Ronald Cutler, P.A. Initial case reviews are offered free of charge, so please don’t hesitate to call or contact us online today.