People using flexible spending accounts to put away money for dependent care could get a big break from the latest Covid relief bill: They will likely be able to use money left in those accounts over the next two years.
The bill, which Congress passed on Monday, removes the limit for what people with dependent care FSAs can roll over in 2021 and 2022. Such plans generally allow a $500 carryover for unused funds at the end of the tax year, and anything in excess would be lost.
"It's use it or lose it, so if you don't use that money within that allowable timeframe, that money is gone," said Nicole Wruck, national health practice leader at Alight, a company that provides human-resource support services such as payroll and employee benefits. "We know that there's a considerable amount of us who are feeling pain from the pandemic financially, and this would offer some additional relief."
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The change is important because many parents found themselves unable to spend the money in dependent care FSAs this year due to the health crisis — daycare centers, schools and camps closed due to Covid, or parents elected to keep their kids at home because of the pandemic.
Under the bill, people will be able to roll over sizable chunks of money into their 2021 or 2022 FSAs. The maximum amount that can be contributed to such an account is $5,000.
While coronavirus pandemic rules allowed employers to give employees a chance to change their contributions mid-year, by the time updates went through, it's likely that people putting in the maximum had about $2,500 already in the account.
"That's a considerable amount of money to lose," said Wruck.
What those with dependent care FSAs need to know
Like the CARES Act, the new Covid relief bill lets employers choose whether they want to take the relief and either raise the dependent care FSA carryover amount or extend the grace period for reimbursements.
Generally, companies that didn't take advantage of the CARES Act provisions were those that felt that they already had the appropriate rules around dependent care FSA accounts to allow participants to get in and out, said Wruck. It's likely that employers will take a similar approach to accepting the new relief, she said.
To be sure, the bill has not yet been signed into law by President Donald Trump, meaning that employers cannot yet decide what makes sense for them. That means employees will need to wait for specifics, according to Wruck.
"Give it until mid- to end of January before an employer is really going to make a decision on what they're going to take," she said.
Luckily, if an employer takes up these provisions, they will have to communicate it to employees because it will be a change or amendment to their plan, said Wruck. And, if employees still need more specific information, their benefits hotline should be able to provide it to them.
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