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The Consolidated Appropriations Act of 2020 (CAA) was signed into law by President Trump on December 27, 2020. Among many other things, this law creates the option for employers to provide COVID-19 relief to both health and dependent care flexible spending arrangement account holders for 2021.

Related: Consolidated Appropriations Act deep dive: Impact on Families First Coronavirus Relief Act’s paid leave provisions

Many employers and employees hoped for this relief, since the past year has not exactly gone “according to plan.” Due to the global pandemic, employees have postponed medical care and treatment, and many dependents have been unable to attend in-person school, leading to unexpected childcare needs. The uncertainty caused by COVID-19 makes it challenging for employees to make sound flexible spending account (FSA) election decisions.

In May of 2020, the Internal Revenue Service (IRS) gave employers the option to make some changes to help employees with FSAs for the 2020 plan year through Notices 2020-29 and 2020-33. The new law addresses many of the same issues for the 2021 plan year, including relief from the “use it or lose it” rules for flexible spending account holders. The CAA allows employers that sponsor health and dependent care flexible spending accounts to make the following plan changes.

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