As my colleague, Laura Rhoades, pointed out last week, it is critical to continuously re-evaluate your financial plans to see if a course correction is necessary during challenging times. At Bridgeworth, we try to point out potential “potholes,” both big and small. This year, your Dependent Care Flexible Spending Account (FSA) may be an area of your plan that needs a course correction.
COVID-19 has thrown a wrench in many of our summer activities, much of which is out of our control. We are now faced with having to alter both our vacation and summer childcare plans.
Some people are working from home and will not be sending their kids to daycare or summer camp, making their yearly expenses lower than they thought when preparing their 2020 Dependent Care elections. Others may have planned to have their kids spend time with grandparents this summer, and now that does not seem like a good idea, so their expenses will be MORE than anticipated. In either case, it is time to re-visit the amount you previously chose to contribute (or not contribute) to your Dependent Care Flexible Spending Account.
If your employer offers a Dependent Care Flexible Spending Account, for 2020, each family can contribute up to $5,000 per year of pre-tax earnings to use towards program expenses for children under the age of 13. The contribution amount is typically contributed evenly through payroll deduction throughout the plan year. Participants submit eligible receipts and are reimbursed as the funds are contributed to the FSA account from payroll deductions. The caveat to most plans is that these funds must be used, or you lose them. Meaning, if you do not incur the expenses eligible for reimbursement, then you forfeit the remaining dollars at the end of the plan year.
If, like me, your children are in elementary school, most of your eligible childcare expenses are incurred during the summertime. If you cannot send your kids to camp this summer, then your 2020 expenses will be LESS, you may want to STOP or LOWER your contributions for the remainder of the year. The IRS has recognized the potential need for families to make necessary changes to their childcare plans and is easing the restrictions that allow for mid-year changes to contributions to Dependent Care Flexible Spending Account. You can find the information they released here.
If you are suddenly faced with needing to pay for childcare that would have previously been provided by a family member, you may want to begin or increase your FSA contributions for 2020.
As you are making new arrangements, you can find information on eligible expenses and other rules for the plans here.