Can I cancel my dependent care FSA due to coronavirus?
With daycares, schools, and childcare facilities closed around the country due to the COVID-19 pandemic, millions of parents are now working from home.
And, many working parents, who set aside money in dependent care flexible spending accounts (FSAs) months ago, are now finding that their summer childcare options are unavailable due to the coronavirus outbreak. This leaves them with the question, “Can I cancel my dependent care FSA due to coronavirus?”
Coronavirus and dependent care FSA: An overview
Luckily, there may be good news for parents and legal guardians who want to make changes to their dependent care FSA in light of the coronavirus pandemic.
Changes in your situation due to coronavirus may allow you to do the following with your FSA account:
- Enroll or dis-enroll from your FSA during a non-enrollment period
- Decrease or increase FSA contribution amounts
Refresher: What is a dependent care FSA?
Dependent care FSA is a pre-tax benefit account used to pay for dependent care. Dependent care expenses are expenses that are eligible for the childcare credit via tax Form 2441.
FSA encompasses services, like:
- Wrap-around school childcare programs
- Day or summer camps (excluding overnight camp)
- Licensed daycare providers
- Licensed childcare providers
And, not just any dependent qualifies for dependent care FSAs. A qualifying dependent is:
- A child whom the taxpayer can claim as a qualifying child who was age 12 or younger when the care was provided.
- A disabled spouse who isn’t able to care for himself or herself and who lived with the taxpayer for more than half the year.
Many people enjoy using dependent care FSAs to save money on childcare expenses for their dependents while they work.
Typically, workers let their employers know the total amount they would like withheld for childcare expenses for a dependent care FSA account during an enrollment period, which is generally before the first day of the plan year.
But, due to coronavirus, changes in circumstances are more common and if a plan allows for mid-year changes or is amended to allow for mid-year changes, participants may be able to make changes to their elections.
Why care about changing your FSA amounts?
Each year, employees lose as much as $400 million in unused FSA balances, FSAStore.com found. Whether you’re struggling financially or not, you have a unique opportunity to revisit your FSA amounts to ensure it makes sense for your family as your work situations and childcare needs change.
Coronavirus and childcare FSA examples
Below are a few coronavirus and childcare FSA examples. Review these common situations and how you might adjust your dependent care FSA contributions or enrollment status:
- If your child’s childcare facility is temporarily closed and you can’t send them there, you may be able to decrease your FSA election or relinquish participation of the plan.
- If your child’s childcare facility changes the amount you have to pay, you may be able to increase or decrease your FSA amounts.
- If your child’s school is closed, and you need to enroll your child in daycare in order to work, you may be able to increase your election or enroll in an FSA program.
- If you were furloughed and need to dis-enroll your child in childcare, you may be able to remove your participation in an FSA or change amounts withheld.
Tips on making dependent care FSA changes
Once quarantine restrictions let up, many workers will resume work in an office setting. What happens if you have to make more dependent care FSA changes?
- In 2020, you may be able to change FSA elections prospectively at any time during 2020 due to a change in circumstances. This includes enrolling or dis-enrolling in an FSA, or changing FSA expense amounts.
- There is usually a timetable to changing FSA elections. Under normal circumstances, you have to request a change to your FSA from your plan within 30 days of your change in status if your plan allows changes. For example, if your spouse became furloughed and you dis-enrolled your child in daycare on April 1, you will have had until April 30 to change your FSA status with your own employer. Under IRS guidance, plans may allow prospective mid-year changes during 2020.
- If you choose to remove your enrollment in an FSA program, you may only be reimbursed for expenses from Jan. 1 (or your start date) through the date you stop participating – unless you enroll again promptly once your situation returns to normal. However, check with your plan about any potential grace periods for unused benefits.
Where to go for help with childcare FSA changes
Speak with your employer and your plan with specific questions related to your FSA account. Each employer and plan will have different steps for reporting and changing childcare FSA programs.
Where to go for tax help
Have questions about how your FSA can affect your taxes? We’re here to help – you can count on the expertise at H&R Block! Whether you choose to file on your own or with a tax pro, you have many ways to file with H&R Block.