S. 4371 - Fair FSAs Act of 2020

SEC. 2. CASH-OUTS OF FLEXIBLE SPENDING ACCOUNTS.

(a) IN GENERAL. — Subsection (h) of section 125 of the Internal Revenue Code of 1986 is amended to read as follows:

"(h) SPECIAL RULES FOR UNUSED BENEFITS IN HEALTH FLEXIBLE SPENDING ARRANGEMENTS. —

"(1) DISTRIBUTIONS UPON TERMINATION OF EMPLOYMENT. —

"(A) IN GENERAL. — If a benefit is provided under a cafeteria plan through employer contributions to a health flexible spending arrangement —

"(i) such plan or arrangement shall not fail to be treated as a cafeteria plan or health flexible spending arrangement (and shall not fail to be treated as an accident or health plan) for purposes of this title merely because such arrangement provides for an election meeting the requirements of subparagraph (B), and

"(ii) such benefit shall not be treated as a qualified benefit for purposes of this section unless such arrangement provides for such election.

"(B) ELECTION. — The requirements of this subparagraph are met if the health flexible spending arrangement provides that, if the employee terminates employment with the employer (whether voluntarily or involuntarily) during the plan year, the employee may elect to receive in cash an amount equal to —

"(i) the excess, if any, of —

"(I) all contributions made to the arrangement for such plan year as of the date the employee terminates employment with the employer, over

"(II) the amount of reimbursements received by the employee under such arrangement during such plan year as of the date the employee ceases to be a participant in the arrangement (including any grace period), reduced by

"(ii) the amount of tax withheld under subparagraph (C).

"(C) DEDUCTION OF TAX. — In paying to an employee the cash payment elected under subparagraph (B), the employer shall deduct and withhold from the employee an amount equal to —

"(i) the taxes which the employer would have been required to deduct and withhold if the employee had received the equivalent amount of wages instead of having made salary reduction contributions to the health flexible spending arrangement, and

"(ii) in the case of a cash payment of any employer contributions to the health flexible spending arrangement, the taxes which the employer would have been required to deduct and withhold if the employee had received the equivalent amount of wages in lieu of such contributions,

determined as if the employee had received such wages on the date the cash payment is made. The amount of tax so deducted and withheld shall be remitted by the employer in the same manner as amounts collected under section 3102.

"(2) QUALIFIED RESERVIST DISTRIBUTIONS. —

"(A) IN GENERAL. — For purposes of this title, a plan or other arrangement shall not fail to be treated as a cafeteria plan or health flexible spending arrangement (and shall not fail to be treated as an accident or health plan) merely because such arrangement provides for qualified reservist distributions.

"(B) QUALIFIED RESERVIST DISTRIBUTION. — For purposes of this paragraph, the term 'qualified reservist distribution' means any distribution to an individual of all or a portion of the balance in the employee's account under such arrangement if —

"(i) such individual was (by reason of being a member of a reserve component (as defined in section 101 of title 37, United States Code)) ordered or called to active duty for a period in excess of 179 days or for an indefinite period, and

"(ii) such distribution is made during the period beginning on the date of such order or call and ending on the last date that reimbursements could otherwise be made under such arrangement for the plan year which includes the date of such order or call.".

(b) TREATMENT AS ACCIDENT OR HEALTH PLAN. — Section 106 of the Internal Revenue Code of 1986 is amended by adding at the end the following new subsection:

"(h) DISTRIBUTIONS UPON TERMINATION OF EMPLOYMENT. — A plan shall not fail to be treated as a health flexible spending arrangement under this section or section 105 merely because such plan provides for an election meeting the requirements of section 125(h)(1)(B).".

(c) EXCISE TAX ON FAILURE TO PROVIDE DISTRIBUTIONS UPON TERMINATION OF EMPLOYMENT. —

(1) IN GENERAL. — Chapter 43 of the Internal Revenue Code of 1986 is amended by inserting after section 4980 the following new section:

"SEC. 4980A. FAILURE TO PROVIDE DISTRIBUTIONS FROM HEALTH FLEXIBLE SPENDING ARRANGEMENTS UPON TERMINATION OF EMPLOYMENT.

"(a) GENERAL RULE. — There is hereby imposed a tax on the failure of a covered cafeteria plan to meet the requirements of section 125(h)(1) (including a failure to withhold and remit any tax as required by subparagraph (C) thereof) with respect to any employee.

"(b) AMOUNT OF TAX. —

"(1) IN GENERAL. — The amount of the tax imposed by subsection (a) on any failure with respect to an employee shall be $100 for each day in the noncompliance period with respect to such failure.

"(2) NONCOMPLIANCE PERIOD. — For purposes of this section, the term 'noncompliance period' means, with respect to any failure, the period —

"(A) beginning on the date such failure first occurs, and

"(B) ending on the earlier of —

"(i) the date such failure is corrected, or

"(ii) the date which is 6 months after the date the employee terminates employment with the employer.

"(3) LIMITATIONS. — Rules similar to the rules of subsections (b)(3) and (c) of section 4980B shall apply with respect to the tax under this section.

"(c) COVERED CAFETERIA PLAN. — For purposes of this section, the term 'covered cafeteria plan' means a cafeteria plan (as defined in section 125(d)) under which a benefit is provided through employer contributions to a health flexible spending arrangement.

"(d) LIABILITY FOR TAX. — Rules similar to the rules of section 4980B(e) shall apply for purposes of determining liability for the tax imposed under this section.".

(2) CLERICAL AMENDMENT. — The table of sections for chapter 43 of such Code is amended by inserting after the item relating to section 4980 the following new item:

"Sec. 4980A. Failure to provide distributions from health flexible spending arrangements upon termination of employment.".

(d) EFFECTIVE DATE. —

(1) IN GENERAL. — The amendments made by this section shall apply to plan years beginning after the date of the enactment of this Act.

(2) PLAN AMENDMENTS. — A plan or arrangement shall not be treated as violating the requirements of section 125(h)(1) of the Internal Revenue Code of 1986, as added by this section (including for purposes of section 4980A of such Code, as so added), if —

(A) the plan or arrangement is amended to meet such requirements on or before the last day of the first plan year beginning after the date of the enactment of this Act,

(B) such amendment applies retroactively to the first day of such first plan year, and

(C) the plan or arrangement operates in accordance with such requirements as of the first day of such first plan year.

A plan or arrangement shall not be treated as failing to satisfy any requirement of the Internal Revenue Code of 1986 merely because the plan or arrangement operates as provided in subparagraph (C).

SEC. 3. EXTENSION OF TIME FOR FILING FSA CLAIMS.

(a) IN GENERAL. — Notwithstanding any applicable rule or regulation under section 125 of the Internal Revenue Code of 1986, a plan or other arrangement shall not fail to be treated as a cafeteria plan or health flexible spending arrangement merely because such arrangement permits participants who make the certification under subsection (b) to carry over any amount of unused benefit or contribution (without limitation) from any plan year beginning or ending in 2020 to the subsequent plan year.

(b) CERTIFICATION BY EMPLOYEE. — In applying for any carryover permitted pursuant to subsection (a), the employee shall certify that the amount to be carried over is attributable to a reduction in expected elective health care expenses in the plan year due to the outbreak of coronavirus disease 2019 (COVID–19) in the United States.

(c) DEFINITIONS. — Any term used in this section which is also used in section 106 or 125 of the Internal Revenue Code of 1986 or the rules or regulations thereunder shall have the same meaning as when used in such section or regulations.