Check Your Dependent Care FSA: Covid-19 Update

Have you found your daycare plans completely changed in the wake of COVID-19? You’re not alone. Many families elected to save money in a Dependent Care Flexible Spending Account during open enrollment in 2019 and never dreamed there would come a time when daycares were closed and camps would be cancelled. 

(Are you a working parent and not using a Dependent Care FSA? Learn more about this employee benefit here.)

Under current law, a married couple filing jointly can save up to $5,000 in a Dependent Care FSA each year (if you are married filing separately you are capped at $2,500). A $5,000 contribution to a Dependent Care Flexible Savings account could mean a $1,200 federal tax savings for a family in the 24% tax bracket. In reality, you save even more money because your contributions avoid FICA and state income taxes as well.

How much more? You can use this calculator to figure out how much you could save by funding a Dependent Care FSA: DCFSA Calculator

Last fall we carefully estimated how much money we anticipated spending on summer camps this year and put that money in a Dependent Care Flexible Savings Account. Now we are skeptical our children will be able to attend summer camp in 2020. With this in mind we started wondering if we could stop contributing to our Dependent Care FSA, or if those future contributions would be lost.

Dependent Care FSAs: Use it or Lose it

As you may know, Dependent Care FSAs are typically “use it or lose it.” You have one year (plus a brief grace period, if your employer allows it, the following year) to use the funds that you’ve saved in a Dependent Care Flexible Savings Account. However, if there is any money left over in that account when you exit the grace period you will lose that money.

There is a very small loophole here that applies to the COVID-19 crisis. A life event can allow you to make a mid-year change to your Dependent Care Flexible Spending account. You’re probably familiar with the common life events such as marriage, death, the birth of a child. However, there is also an exception for a change or cost of coverage. In this case, with COVID-19 shutting down many daycares, you now may have a qualifying event to edit your contributions for 2020 if your cost or coverage has changed. A pandemic in and of itself doesn’t not constitute a life event. You may not be able to change all of your benefit elections. Ask your Human Resources department.

Me after receiving an email that camp was cancelled:

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via GIPHY

Should you change your Dependent Care FSA contributions for 2020?

It depends. Think about what you anticipate spending on daycare for the rest of the year. If you are worried you will be spending significantly less money on daycare and you’ve been putting money into a Dependent Care FSA please call your Employee Benefits Department. Ask them about stopping contributions. 

If you think your child care expenses will be going up in 2020, and you haven’t fully funded a dependent Care flexible savings account, you could also call your Employee Benefits Department. Ask them to make a change and start contributing more money to your Dependent Care FSA.

When we spoke to the employee benefits department for my husband’s employer they told us you can make a one-time change using the COVID-19 crisis as the life event. With daycares closed and camps cancelled you have a qualifying “change in coverage.” Carefully consider what you anticipate your cost for childcare will be in 2020 then call your employee benefits department, let them know you’ve had a change in coverage, and make the change.