As you respond to COVID-19 and its impact on your business, employees, and communities, PrimePay is here to answer your questions and provide support. Please see the following answers to some frequently asked questions regarding pre-tax benefits.

What happens to the FSA of employees who are not receiving a paycheck and, therefore, not having deductions taken?

Many employees will not be receiving a paycheck during this time of shelter-in-place orders and social distancing. Some of those employees have Flexible Spending Accounts (FSA) and are curious to know what will happen to their FSA during this time.

If the employee was terminated, this will be no different than other terminations, whether voluntary or involuntary. The employee may be eligible for and elect COBRA (depending on the size of your business and the type of benefit offered). Otherwise, they may submit claims for expenses incurred through the date their coverage ends until the end of the plan’s run-out period. For terminated employees, the end of the run-out period is typically based on their termination date and not the end of the plan year.

If the employees are brought back to work soon, they may be on unpaid leave or furloughed. Your plan document should explain if these employees remain benefit-eligible. If so, the uniform coverage rules apply, and employees will have access to their full health FSA election, not just the amount contributed so far.

Can we refund what employees have contributed to their commuter, Dependent Care Account (DCA), or health FSA?

While money may be tight for many employees due to reduced hours, decreased tips, or not having work at all, the IRS does not allow a refund of FSA contributions and there has been no new guidance around COVID-19 which changes this position.

Employees can still submit eligible expenses for reimbursement. Additionally, DCA and commuter participants can reduce their future deductions to $0. For DCAs, reductions may be made to reflect changes in cost, coverage, or provider. For commuter accounts, there are no restrictions on when a reduction may be made if it is for the future. While these steps may not provide cash as quickly as a refund, they may still help employees with their cash flow during this time.

Health FSA participants can only change their elections and reduce or eliminate contributions if they experience a permitted election change event. Unfortunately, the current global pandemic does not in itself constitute a permitted event, but employees may be able to change their health FSA election if they’ve experienced a change in employment status resulting in a loss of eligibility under the plan (e.g. full-time to part-time status or unpaid leave) as a result. The same rules apply regarding refunding previously contributed funds to a health FSA.

Can employees transfer their transit contributions to a parking account?

Some mass transit systems are limiting their service, for example, with weekend-only service. As a result, employees may drive to work rather than utilize public transportation. They won’t need their monthly transit pass but will need to pay for parking. Funds in a transit account may seem like an option to cover those parking expenses.

However, these funds can’t be transferred between accounts. Once the money is deposited into a parking or transit account, it cannot be used for anything other than qualified expenses for that type of account. Future deductions can be reduced to zero and funds in the account roll over from year to year so the contributions in the transit account will be available once the transit systems are back to normal.

Can employees elect a DCA if they didn’t have one before?

With schools closed, employees may suddenly find that they need to make childcare arrangements so they can continue to work. They may want to take advantage of the pre-tax benefits of a DCA to pay for that childcare. DCA contributions can be changed at any time during the plan year due to a change in cost, coverage, or provider. However, a new enrollment can only happen mid-year when a permitted election change event occurs, such as the birth of a child. As a result, employees that weren’t previously enrolled cannot enroll because they now need childcare.

Additionally, employees who were enrolled in the DCA but might now have different childcare needs can change their election. If a spouse is now home to care for the children, the election can be reduced. If your employee went from needing after school care to all daycare, the election can be increased.

PrimePay will continue to share information on frequently asked questions to help you prepare and respond.

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Disclaimer: Please note that this is not all-inclusive. Our guidance is designed only to give general information on the issues covered. It is not intended to be a comprehensive summary of all laws which may apply to your situation, treat exhaustively the subjects covered, provide legal advice, or render a legal opinion. Consult your legal advisor regarding the specific application of the information to your plan.