The IRS has launched an data letter responding to an inquiry from a certified transportation plan participant whose employer determined to let him do business from home completely as a result of COVID-19 pandemic. To keep away from shedding compensation discount quantities he had beforehand put aside for parking, the participant requested whether or not his unused compensation reductions might be transferred to a well being FSA below a cafeteria plan.
The letter explains that unused compensation discount quantities below an employer’s certified transportation plan may be carried over to subsequent durations below the plan and used for future commuting bills, as long as the worker doesn’t obtain advantages that exceed the utmost excludable quantity in any month. However money refunds aren’t permitted, even to staff whose compensation discount quantities exceed their want for certified transportation fringe advantages. Moreover, the Code prohibits cafeteria plans from providing certified transportation fringe advantages, and IRS guidelines don’t allow unused compensation discount quantities below a certified transportation plan to be transferred to a well being FSA below a cafeteria plan. The letter additionally notes that COVID-19-related reduction for FSAs provides employers the discretion to amend their cafeteria plans to allow midyear well being FSA election adjustments for plan years ending in 2021 (see our Checkpoint article).
EBIA Remark: The certified transportation guidelines have confirmed sufficiently versatile to deal with most conditions ensuing from the COVID-19 emergency (see, e.g., our Checkpoint article). Most employers allow profit election adjustments a minimum of month-to-month, and plans can enable present individuals to hold over unused balances indefinitely. Compensation reductions put aside for one certified transportation profit (e.g., parking) may even be used for a special transportation profit (e.g., transit) if the plan permits and the utmost month-to-month profit shouldn’t be exceeded. However—as this participant’s request to switch parking compensation reductions to a well being FSA suggests—these choices aren’t all the time ample. As a result of some threat of loss attributable to altering circumstances is unavoidable, employers ought to clearly articulate that threat to staff earlier than they make compensation discount elections. For extra data, see EBIA’s Fringe Advantages handbook at Sections XX.O (“Compensation Discount Elections”) and XX.P (“Carryovers Allowed for Present Contributors: Former Contributors Can’t Have Unused Quantities Refunded”). See additionally EBIA’s Cafeteria Plans handbook at Sections X.C (“Advantages That Can’t Be Supplied Below a Cafeteria Plan”) and XVI.N (“Non permanent COVID-19-Associated Reduction for Cafeteria Plans, Well being FSAs, and DCAPs”).
Contributing Editors: EBIA Employees.
