1 

United States 

Office of 

Personnel Management 

The Federal Government’s Human Resources Agency 

Benefits Administration Letter 

Number: 21-802 Date: May 20, 2021 

Subject: Flexibilities Allowed for the Federal Flexible Spending Account Program 

(FSAFEDS) During Plan Year 2020 and 2021 

Purpose 

The purpose of this Benefits Administration Letter (BAL) is to provide guidance on the Office of 

Personnel Management’s (OPM) implementation of flexibilities offered under the Consolidated 

Appropriations Act (CAA), 2021, Internal Revenue Service (IRS) Notices 2021-15 and 2021-26 

and the American Rescue Plan Act (ARPA or Act) of 2021. These flexibilities relate to the 

Federal Flexible Spending Account Program (FSAFEDS). This BAL applies to all agencies that 

have adopted the Federal Flexible Benefits Plan (“FedFlex”), a cafeteria plan established under 

Section 125 of the Internal Revenue Code of 1986. Agencies with their own Section 125 

cafeteria plan may allow different flexibilities for their employees with flexible spending 

accounts, with the exception of new FEHB and FEDVIP enrollments that OPM has decided not 

to permit. 

Background 

In 2020, IRS guidance provided certain flexibilities with respect to cafeteria plans to be 

implemented by the end of calendar year 2020, including the ability to newly enroll or make an 

increase or decrease to existing FSA contributions. OPM adopted many of those flexibilities.1

Beginning in December 2020, additional legislation and guidance have further expanded 

available flexibilities as follows: 

1. On December 27, 2020, Section 214 of the Taxpayer Certainty and Disaster Tax Relief

Act of 2020 (Division EE of the CAA)2 was signed into law which allowed for additional

flexibilities for cafeteria plans in 2020 and 2021.

1

 These flexibilities were described in BAL 20-803 (https://www.opm.gov/retirement-services/publicationsforms/benefits-administration-letters/2020/20-803.pdf) 

2 https://www.congress.gov/116/bills/hr133/BILLS-116hr133enr.pdf#page=1887 
2 

2. On February 18, 2021, the IRS issued Notice 2021-153 which provided guidance related

to the CAA flexibilities and additional relief with respect to mid-year health coverage

elections.

3. On March 11, 2021, the ARPA was signed into law4 which raised the limit on maximum

contributions for pre-tax earnings to a dependent care flexible spending account

(DCFSA) from $5,000 to $10,500 (for single or married filing jointly) and from $2,500 to

$5,250 (for married filing separately).

4. On May 10, 2021, the IRS issued Notice 2021-265 which clarified tax rules for DCFSA

funds during tax years 2021 and 2022.

As the Plan Administrator of FedFlex, OPM is implementing the flexibilities described below 

for Plan Years (PY) 2020 and 2021. 

Although the COVID-19 pandemic continues to be a main reason for these additional 

flexibilities, participants do not need to be directly affected by COVID-19 and do not need 

to experience a Qualifying Life Event (QLE) to make changes as described in this BAL. 

Description of FSAFEDS Permitted Changes 

1. Current Healthcare Flexible Spending Account (HCFSA) and Limited Expense

Healthcare Flexible Spending Account (LEX HCFSA) participants who are eligible

may carry over unused contributions from PY2020 to PY2021, and then again from

PY2021 to PY2022.

HCFSA and LEX HCFSA participants will be permitted to carryover unused funds remaining 

in their accounts as of the end of PY2020 for use in PY2021 (i.e., the carryover amount will 

not be subject to the current $550 cap). Current participants may use the full PY2020 

carryover amount in addition to the maximum PY2021 account contribution (currently, 

$2,750) for reimbursement for expenses incurred at any time from January 1, 2021 forward. 

Employees who enrolled in a HCFSA or LEX HCFSA in PY2020 and had funds remaining in 

their accounts but did not re-enroll in PY2021 may newly enroll during the Special Enrollment 

Period (SEP) as outlined in Section 4 of this BAL. Those newly enrolled participants may only 

utilize unused PY2020 carryover funds prospectively (that is, only for expenses incurred 

following the date of their PY2021 new enrollment). 

All HCFSA and LEX HCSA participants (both currently enrolled and who newly enroll during 

the Special Enrollment Period) will be permitted to carry over unused funds remaining in their 

account at the end of PY2021 for use in PY2022. Participants must re-enroll in PY2022 to use 

PY2021 carryover funds, as required by FedFlex. Participants who re-enroll in PY2022 may 

elect and use up to the maximum contribution amount ($2,750), in addition to any funds 

carried over. Participants should be aware that these flexibilities will end at the conclusion of 

PY2022 and, based on otherwise applicable plan rules and IRS guidance, carryover from 

3 https://www.irs.gov/pub/irs-drop/n-21-15.pdf

4 https://www.congress.gov/117/bills/hr1319/BILLS-117hr1319enr.pdf

5 https://www.irs.gov/pub/irs-drop/n-21-26.pdf 
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PY2022 to PY2023 will again be limited to $550. 

Participants do not have to take any action to be permitted these flexibilities. All unused 

PY2020 funds remaining in accounts will be carried over to accounts automatically by 

FSAFEDS (for current participants and, once they are enrolled, for participants who newly 

enroll during the Special Enrollment Period). Participants will notice these changes upon 

logging into their account on the FSAFEDS website. 

2. Grace period to incur DCFSA eligible expenses extended to December 31 for

PY2020 and PY2021.

Participants who made an election to have a DCFSA for PY2020 normally would have until 

March 15, 2021 (the “grace period”) to incur eligible DCFSA expenses. Any funds not used 

during the grace period are normally forfeited. 

Under the new flexibilities announced in this BAL, an extension of this grace period is being 

allowed in PY2020 and PY2021. Specifically, participants who made an election to a 

DCFSA in PY2020 and who had funds remaining at the end of 2020 will now be allowed to 

use the remaining PY2020 funds to be reimbursed for eligible expenses incurred through 

December 31, 2021. Participants who have DCFSA funds remaining at the end of 2021 will 

now be allowed to use the remaining funds to be reimbursed for eligible expenses incurred 

through December 31, 2022.6

Participants do not have to take any action to be permitted these flexibilities; the extended 

grace period for incurring expenses through the end of 2020 has been applied to their account 

automatically by FSAFEDS and will also be automatically applied for 2021. Participants will 

notice these changes upon logging into their account on the FSAFEDS website. 

3. During a 30-day Special Enrollment Period (SEP) from June 1, 2021-June 30,

2021 participants who elected an HCFSA or DCFSA for PY2021 will be allowed a

one-time opportunity to make a change to their annual election amount.

During the 30-day SEP , from June 1, 2021 to June 30, 2021, all participants who have 

enrolled in a 2021 HCFSA, LEX HCFSA, or DCFSA will be allowed to make a one-time 

change (increase or decrease) in the amount of their annual election in each FSA account in 

which they are enrolled. 

Participants may not increase the amount of their election(s) in excess of the annual 

contribution limit (for HCFSAs and LEX FSAs the annual contribution limit is $2,750; for 

DCFSAs, the annual contribution limit in 2021 only is $10,500 (for single or married filing 

jointly) and $5,250 (for married filing separately)). In accordance with IRS guidance, salary 

withholding of the allotments will be prospective beginning on the first pay period after 

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 The grace period for funds remaining at the end of 2021 will be extended to December 31, 2022. The flexibilities 

allowed here will then end, but the usual grace period allowed by the plan will extend from PY2022 to 2023. 

Hence, any funds remaining at the end of 2022 can be used to be reimbursed for eligible expenses incurred through 

March 15, 2023. 
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processing by FSAFEDS. The effective date of the election change for qualified expenses will 

be retroactive to the most recent effective date of your FSA. 

Participants who decrease their election cannot receive a refund of allotments from pay they 

have already made to their FSA account(s) year-to-date. In addition, participants cannot 

decrease their election below the amount already allotted to the FSA account OR the amount 

already reimbursed for eligible expenses, whichever is greater. Finally, regardless of the 

effective date of the election change, participants in all account types will be permitted to use 

the newly elected amount for claims incurred from their most recent 2021 effective date. 

Current participants can increase or decrease elections during this period by visiting 

www.FSAFEDS.com and choosing “2021 Special Enrollment Period” from the “Enroll in a 

Plan” menu located at the top of the home page and following the instructions. They will need to 

choose the “2021 Special Enrollment Period Increase/Decrease” event type. It is important to 

note that once the participant hits the “I ACCEPT” button, they will be directed to the QLE 

module on the website to complete the request, however, a QLE is not needed during this period. 

The new election will be effective retroactively to the most recent effective date for 2021. 

Existing DCFSA participants may wish to accelerate their allotments now if they intend to 

increase their election. Current participants can do this by logging in to their online account and 

adjusting the number of pay periods. 

Example Scenarios: 

Example 1: During the 2020 Open Season, Luciana Hernández elected $1,500 for her 2021 

HCFSA, to be taken in equal allotments for the 26 pay dates in 2021. She would like to 

reduce her annual election. At the time her newly reduced election becomes effective, $750 

has been allotted and $500 has been reimbursed to her for eligible expenses. Luciana can 

reduce her election as low as $750, the amount already allotted, as the amount reimbursed 

($500) is not a greater amount. 

Example 2: Trevon Johnson elected the maximum of $2,750 for his 2021 LEX HCFSA. In 

early January, he had laser eye surgery, and used his entire election amount to help cover the 

cost of $3,300, which exceeded his $2,750 election amount. Trevon cannot reduce his election 

since he has already been reimbursed the entire amount he elected for 2021.

Example 3: Sally Williams elected $4,000 to her DCFSA. She would like to reduce her 

election. At the time her newly reduced election becomes effective, $2,200 has been allotted 

and $2,200 has been reimbursed to her (participants in a DCFSA may only be reimbursed up to 

funds available). She can reduce her election as low as $2,200, the amount already allotted. 

For participants who make a change in their election, FSA allotments will be adjusted 

prospectively and prorated over the remaining pay periods. Therefore, the new allotment amount 

each pay period will depend on the number of remaining pay periods at the time the change 

becomes effective. 
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Example 4: Vihaan Reddy elected $1,300 to his 2021 HCFSA, to be taken in equal allotments 

for the 26 pay dates in 2021. Vihaan decides to increase his annual election to $2,000 due to 

increased medical care costs for himself and his family. There are 10 pay periods remaining 

in the year. The amount of his remaining allotments will be calculated as follows: 

Current election amount: $1,300 

Current allotment amount: $1,300/26 pay periods = $50/pay period 

New election amount: $2,000

Amount already allotted year-to-date: $800 

Difference: $1,200 ($2,000 - $800) 

New allotment amount: $1,200/10 pay periods = $120/pay period 

Example 5: Sam Lee has elected $2,600 to his HCFSA. At the time he submits the change to 

his election, he has allotted $1,800 and has been reimbursed $1,200. Sam decides to reduce his 

annual election to $2,000. There are 8 pay periods remaining in the year. The amount of his 

remaining allotments will be calculated as follows: 

Current election amount: $2,600 

Current allotment amount: $2,600/26 pay periods = $100/pay period 

New election amount: $2,000

Amount already allotted year-to-date: $1,800 

Difference: $200 ($2,000 - $1,800) 

New allotment amount: $200/8 pay periods = $25/pay period 

Tax clarification for DCFSA participants planning to increase their election 

The IRS issued Notice 2021-26 to provide guidance on the taxability of DCFSA funds for tax 

years 2021 and 2022. Since the amount of unused funds remaining at the end of PY2020 and 

PY 2021 can be used to reimburse eligible expenses through 12/31/21 and 12/31/22 

respectively, the total amount available to a participant for reimbursement (DCFSA 

contribution + unused funds from prior year available through the extended grace period) could 

exceed the $10,500 limit in 2021 and/or the $5,000 limit in 2022. Notice 2021-26 clarifies that 

funds available in 2021 and 2022 as a result of an extended period for incurring claims are 

generally not taxable when used for eligible dependent care expenses. Funds that would have 

been excluded from income if used during tax years 2020 and 2021 remain excluded from 

gross income and are not considered wages when their use is permitted during an extended 

grace period in 2021 and 2022. 

Example 1: LeShawn Smith has $3,500 remaining in his PY2020 DCFSA account, which can 

now be used for reimbursement through the extended grace period in PY2021. LeShawn also 

has a PY2021 account and decides to increase his contribution to $10,500. Of the total 

amount now available ($3,500 + $10,500 or $14,000), LaShawn is reimbursed $14,000 for 

qualified expenses. 

2020 funds available in 2021 due to extended grace period (and excluded as income): $3,500 
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Increased 2021 election: $10,500 

Total amount available in 2021 account: $14,000 

Reimbursements paid in 2021: $14,000 

Funds considered gross income/wages: $0 ($10,500 excluded as 2021 benefits, additional 

$3,500 qualifies as excluded income from 2020 and use permitted in 2021 due to extended 

grace period). 

Note: Participants should consider their DCFSA allotment amount when increasing 

their election to the new maximum. Depending on the elected increase, the allotment 

could be higher than expected. 

Example: Joe Hill elected $5,000 to his 2021 DCFSA, to be taken in equal allotments for the 

26 pay dates in 2021. Joe decides to increase his annual election to $10,500 to take 

advantage of the new DCFSA maximum. There are 14 pay periods remaining in the year. 

The amount of his remaining allotments will be calculated as follows: 

Current election amount: $5,000 

Current allotment amount: $5,000/26 pay periods = $192.31/pay period

New election amount: $10,500 

Amount already allotted year-to-date: $4,500 

Difference: $6,000 ($10,500 - $4,500) 

New allotment amount: $6,000/14 pay periods = $428.57/pay period

4. Prospective-only new enrollments in HCFSA and DCFSA accounts.

Also, during the Special Enrollment Period (SEP) June 1 – June 30, 2021, eligible employees will have a 

one-time opportunity to make an irrevocable election to enroll in HCFSA, LEX HCFSA, and DCFSA 

accounts. The election is effective prospectively, on the first day of the following pay period after 

acceptance by FSAFEDS. Allotments will occur on a prospective basis, divided evenly among the pay 

periods remaining in the year following the effective date of enrollment. 

Additionally, claims eligible for reimbursement may only be incurred on a prospective basis 

from the effective date of enrollment. 

Participants who want to enroll for the first time in 2021 must go to www.FSAFEDS.com, 

select “2021 Special Enrollment Period” under the “Enroll in a Plan” menu at the top of the 

home page and follow the instructions. They will need to choose the “2021 Special 

Enrollment Period - New Account” event type. It is important to note that once the 

participant hits the “I ACCEPT” button, they will be directed to the Qualifying Life Event 

module on the website to complete the request, however, a QLE is not needed during this 

period. The election will be effective the first day of the following pay period (as determined 

by their agency’s payroll schedule) after acceptance by FSAFEDS. 

New HCFSA and DCFSA participants are permitted to take advantage of the expanded 

HCFSA carryover, the extended DCFSA grace period, and the new increased 2021 DCFSA 
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contribution limits that could not have been known to participants when making 2021 

enrollment decisions during Open Season. Moreover, dependent/childcare and 

medical/healthcare related costs remain difficult to estimate and predict due to the ongoing 

impacts of the COVID-19 pandemic. 

5. Increase in maximum age for eligible dependents from those under age 13 to those

under age 14 for PY2020 and, if unused funds at the end of 2020, for PY2021.

Under the new flexibilities, the maximum age for eligible dependent children under a DCFSA is 

increased from those under age 13 to those under age 14 for PY2020. All unused funds that 

were available at the end of 2020 can also be used for an “aged out” dependent child until that 

dependent turns 14 and for dependents who turn 13 during 2021. To be eligible to take 

advantage of this flexibility, a participant must have enrolled in a DCFSA in PY2020 and have a 

dependent who turned 13 during 2020. A participant who meets these requirements may seek 

reimbursement for eligible expenses incurred during PY2020 for dependent care expenses 

associated with an “aged out” dependent. If unused funds remain in the DCFSA at the end of 

2020, the participant may use those unused funds (but not new PY2021 contributions) for 

eligible expenses incurred for the “aged out” dependent (until that dependent turns 14) and for 

any dependents who turn 13 in PY2021. 

This flexibility has already been implemented by FSAFEDS. DCFSA participants who are 

eligible to take advantage of this flexibility may now submit requests for reimbursement for 

“aged out” dependents as outlined above.

Changes still allowed in FSAs due to a Qualifying Life Event (QLE) 

The one-time opportunity to increase or decrease the FSAFEDS election should not be confused 

with the existing opportunity to increase DCFSA or HCFSA elections through September 30 

based on a QLE such as cost or coverage changes in dependent care or elder care, more fully 

described in BAL 20-802.

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 Decreases are accepted after September 30 until the beginning of 

open season. The one-time opportunity described in this BAL does not require the participant 

to establish a QLE. Further, it does not preclude a participant from submitting a QLE change 

before or after submitting a change during the one-time opportunity, provided that the QLE is 

submitted no later than September 30, 2021. 

How to submit election changes and for further information 

FSAFEDS will communicate the changes outlined in this BAL to current 2021 participants and 

those who were enrolled in 2020 but did not re-enroll for 2021. We ask Agency Benefits Officers 

to reach out to all of their employees to let them know about these flexibilities, especially the 

opportunity to newly enroll during the SEP. 

On www.FSAFEDS.com, the employee can select “2021 Special Enrollment Period” under the 

“Enroll in a Plan” menu at the top of the home page and follow the instructions. Current 

7 https://www.opm.gov/retirement-services/publications-forms/benefits-administration-letters/2020/20-802.pdf
8 

participants must choose the “2021 Special Enrollment Period - Increase/Decrease” event type. 

New participants must choose the “2021 Special Enrollment Period - New Account” event type. 

It is important to note that once the participant hits the “I ACCEPT” button, they will be directed 

to the Qualifying Life Event module on the website to complete the request. 

Agency Benefits Officers should direct participants to contact FSAFEDS by visiting 

www.FSAFEDS.com or by calling 1-877-FSAFEDS (372-3337).

For questions concerning this Benefits Administration Letter, please contact your Agency’s 

Headquarters Benefits Officer. If you do not know who this person is, please go to 

https://apps.opm.gov/abo/ where you will find a list of agencies and their Headquarters Benefits 

Officers.

Sincerely, 

Laurie Bodenheimer 

Associate Director

Healthcare and Insurance