How Washington’s Most Recent Stimulus Plan Affects FSAs

Stack of 20 dollar bills with US Treasure illustrative check to illustrate coronavirus stimulus payment on white background

President Joe Biden recently signed Washington’s latest stimulus package into law. The American Rescue Plan Act (ARPA) contains $1.9 trillion in goodies for tens of millions of individuals as well as businesses, trade groups, unions, government agencies, and more. If you have a flexible spending account (FSA) through your employer, there is something in it for you too.

Much of what BenefitMall discussed in a February 2021 blog post was worked into the ARPA. So, kudos for their foresight. Yet the FSA provisions were not part of that post. They are part of the bill, much to the delight of both employees and employers. Below is everything you need to know in summary form.

  1. 100% Carry Over Allowance

Prior to the pandemic, employees were not allowed to carry over unused FSA money from one year to the next. They can now. The ARPA allows 100% carry over from 2020 to 2021. Employers can also carry over 100% of any unused funds from this year into 2022.

The impetus behind this provision was the reality that many families did not use the total amount set aside to cover childcare expenses, due to being home for a good part of 2020. It was reasoned that they should not lose that money because parents and kids were stuck at home by something that they had no control over.

Right now, a 100% carry-over allowance is only good for 2021 and 2022. Could it be made permanent? No one in the Biden administration has said anything to that effect. But it is a safe bet that someone will bring it up before too long. Don’t bet against the provision being made permanent within the next year or two.

  1. Increased FSA Allowances

Another big boost for the FSA crowd is an increased contribution allowance. Prior to the ARPA, employees could contribute a maximum of $5,000 to go toward dependent care. That number has been more than doubled to $10,500.

If nothing else, the increased allowance provides a further tax haven for those who can afford to set money aside. As you might already know, FSA contributions are deducted from your pay before payroll taxes are calculated. Both you and your employer benefit by way of lower tax liabilities. As such, doubling the amount you can contribute for dependent expenses is significant.

This provision is also likely to be revisited at some point down the road. However, it stands less of a chance of being made permanent. Anything that reduces Washington’s tax revenue is a hard sell on Capitol Hill. Getting it included in the ARPA was almost certainly the result of a compromise needed to get bipartisan support.

  1. Extending CARES Act Provisions

On a final note, the ARPA extends three provisions from the CARES Act for the next six months. For starters, unemployment benefits for those who cannot return to work continue to be extended from 50 to 79 weeks through September 6, 2021.

Supplemental unemployment benefits continue at $300 a week while additional federal unemployment insurance benefits can be accessed for 53 weeks after state benefits are exhausted on the 24th week. In short, all of the unemployment provisions put in place by the CARES Act have been extended for another half year.

Washington has now spent upwards of $6 trillion to keep the American economy afloat in the midst of the ongoing coronavirus crisis. Whether or not such spending is sustainable remains to be seen. For now, tens of millions of people are getting a boost from seemingly bottomless government coffers. You are included if you have an FSA through your employer.