A Little Help: Changes to FSA and DCAP for Families
As I sit down to write this blog, my house is a symphony of noise. Squeals, laughter, the occasional “that’s mine,” a sprinkle of a faint Disney Princess movie playing in the background, and wait for it…wait for it…a “Mom…Dad…I need to go potty.”
As has become a familiar thread in several of my previous blog posts, my wife Brynn and I are raising daughters. Brooklyn (4) and Blake (2) take all of our time, energy, and effort these days, and as you’ve either heard or experienced yourself, it’s the most rewarding thing we’ve ever done.
That said, in a COVID-19 environment, I would argue that we are truly RAISING these girls. While a firm believer in the adage that “it takes a village,” with the world sheltering in place, I would argue that our village is seemingly out of reach. Although the village certainly still surrounds us and is willing to help, their ability is somewhat stifled.
Like many other people during these uncertain times, we’re doing our best to navigate this new chapter in parenting. A big part of our village, and one that we lean on heavily for both guidance and expertise, are the educators who teach our girls. From an early age, both girls have been enrolled in preschool programs. An unexpected turn early in this new cycle of parenting was virtual classrooms for our daughters.
While I’ve grown accustomed to an endless stream of Zoom meetings in my professional life, it is something entirely different to see your 2-year-old with headsets plugged into a “conference call” for her daily dose of colors, shapes, and animal noises.
While not ideal, we made it through the remaining few weeks of the school year in this newly minted virtual environment and managed to limp our way into the summer. A sigh of relief, a collective high-five, and a “thank goodness that it’s over” was shared by my wife and me over a glass of wine.
Then, the unthinkable happened. Time continued to move forward without much progress on the COVID-19 front.
New cases, “re-sheltering” in-place, and the unrelenting tick of days from the calendar. We reached the demarcation line of July 4th and still not much progress. What initially seemed like a distant island on the horizon started to grow into a significant land mass, and we all had to face the reality of the upcoming school year.
Fear grew to panic, which eventually grew to a certainty…school would not be the same for the new school year. While still being decided and different by district, county, and state, it appears that our start to the school year will be virtual. The virtual environment could drag on, and if COVID-19 has taught us anything, we’ll have to be nimble and adapt.
What Changed to FSA and DCAP to Help Families During COVID-19?
I give this lengthy background around school and daycare as it has resurrected the importance of a change announced by the IRS in early May regarding funds in Flexible Spending Accounts (FSA) and Dependent Care Assistance Accounts (DCAP).
If an employer chooses, these changes permit:
- An extended period for incurring health FSA or DCAP expenses
- Health FSA carryovers of up to $550 for plan years beginning in 2021
- Most notably: relaxed mid-year insurance election rules for health FSAs and DCAPs for 2020 to allow participants to revoke their elections, make new elections, or increase or decrease existing elections
Relaxed Mid-Year Insurance Election Change for DCAPs
While the employer sets the minimum and maximum allowable limit within their plan, the IRS sets the maximum limit at $5,000 annually ($2,500 per parent if married and filing separately) tax free.
Examples of eligible expenses under a DCAP are:
- Before school or after school care (other than tuition)
- Qualifying custodial care for dependent adults
- Licensed daycare centers
- Nursery schools or preschools
- Placement fees for a dependent care provider, such as an au pair
- Childcare at a day camp, nursery school, or by a private sitter
- Late pick-up fees
- Summer or holiday day camps
Practical Applications of DCAP During COVID-19
Now that I’ve nerded out on the regs for a bit, let’s talk practical application. What we’ve heard as feedback from many people is that they’re reducing or stopping payments into their DCAPs altogether with many childcare facilities still closed. As the world slowly reopens and childcare professionals configure their new normal, these funds become useful again.
Either way, given the uncertainty in school availability, the need for extended daycare or after school care for children of working parents, or the removal of daycare altogether given a reduction of hours or pay due to COVID, makes this rule incredibly relevant for many employees. If an employer chooses to make these changes, they must adopt an amendment for their Section 125 plans by December 31, 2021, and must also notify employees of the changes.
Strategizing Your Employee Benefits
While not for every employer, I think it’s an important part of the strategy and evaluation process this year for many. It could help employees navigate changing family dynamics and adjust for needs accordingly. A seemingly minor change for employers other than the associated administrative lift, this change could provide a much-needed tool for family budgets.
While considering what 2020 and beyond will look like, please connect with your Holmes Murphy team about questions on this or any of the other evolving topics in the employee benefits landscape.
As much as I’d love to continue pontificating on the generosity of recent IRS rulings, I’ve got a farm animal Zoom meeting to start and a Little Mermaid dress that needs mending. In the meantime, reach out with questions, stay safe, and regardless of what season of life you’re in during this COVID-19 environment, hang in there!
Published on: 07.27.20