The 2021 Consolidated Appropriations Act, signed into law on December 27, 2020, gives employers the option to significantly increase the flexibility of employees’ health and dependent care flexible spending accounts (FSAs). These changes were prompted by the COVID-19 pandemic, as many health care providers have limited access to routine treatments and many child care services have been suspended, potentially leaving FSA funds unused.

• Unlimited carry-overs: Employers may allow participants to carry over 100 percent of the unused amounts in their health and dependent care FSAs from 2020 to 2021, and from 2021 to 2022. Normally, the carry-over amount is limited to $550 for health FSAs, and carry-overs are not permitted for dependent care FSAs.

• Extended grace period: Employers may extend the grace period for usage of FSA funds for plan years ending in 2020 or 2021 from the normal two and a half months to 12 months.

• Expanded mid-year election changes: Employers may allow employees to change their FSA contribution rates at any time during 2021 without requiring a change in status. Usually, employees may not make mid-year election changes without a corresponding status change event (such as the addition of a dependent or a change in marital status).

• Post-termination reimbursements from health FSAs: Employers may permit employees who terminate employment in 2021 to receive reimbursements from unused health FSA amounts through the end of the plan year, including any grace period. Normally, this option is only available to employees who elect COBRA continuation coverage under their health FSA.

• Spend-down of dependent care FSA for dependents who age out: Employers may permit employees to use dependent care FSA amounts for children under age 14, through the end of the 2021 plan year. Normally, dependent care FSA funds may only be used for the care of a dependent child who is under the age of 13.

Employers are not required to make any of these changes, but they could provide a valuable benefit to employees. To implement any of these changes, employers must amend their cafeteria plan or FSA plan. Amendments for any of these changes may be adopted with retroactive effect, so long as the amendment is adopted by the last day of the first calendar year beginning after the end of the plan year in which the amendment is retroactively effective. For example, if your FSA uses the calendar year as its plan year, an amendment may be effective retroactive to January 1, 2020 as long as it is adopted no later than December 31, 2021.