What You Should Know
If you’re one of the Dependent Care Flexible Spending Account (FSA) beneficiaries, you may have probably already gotten wind of the recent updates and adjustments.
The American Rescue Plan Act of 2021, which was signed into law by Joe Biden on March 11, 2021, offers much-needed relief. The $1.9 Trillion bill is meant to offer financial relief following the COVID-19 pandemic impact.
The bill primarily offers expanded tax credits, unemployment benefits and seeks to address some of the shortcomings and questions arising from relief bills that were passed in the years since the onset of the pandemic.
For those unfamiliar with the provisions, the dependent care FSA is essentially a pretax benefits account which you can use to pay for services like summary camps, daycare, pre-schools, and before/after–school programs. You can also use the funds on expenses that relate to children below the age of 13 or who are unable to take care of themselves for whatever reasons.
Highlights of the FSA changes in The American Rescue Plan
- Dependent Care Adjusted: The bill has now revised the contribution limits to the Dependent Care FSAs upwards. Married couples filing their contributions jointly have now been capped at $10,500, a more than 100% increase from the previous limit of $5,000. For single fillers or couples filing separately, the limit has been revised to $5,250, from the previous $2,500*.
- FSA Health Contributions:While this would have been highly appreciated, the latest approved stimulus has made no changes to the Health FSA contributions. So the FSA Health Contributions remain at $2,750** as before.
- You can now carry over your FSA:Unlike before, you are now allowed to carry over your unused dependent care and/or health FSA funds from your current plan ending in 2020 or 2021. This will go a long way towards extending the usability of your FSA contributions in these unpredictable pandemic times.***
Things to note
While this is highly welcomed news by most employees, it’s important to note that:
- Employees are not obligated to make modifications to their plans to accommodate these new changes. So under this temporary provision, they can choose to extend these benefits to their employees, or not.****
So, while the employer has a decision to make, employees should highlight the additional value of FSA contributions to their employers and come to a mutual agreement. Also, communication of these provisions by the employers is critical.
Citations
*. CNBC.com, March 12, 2021
**. CNBC.com, March 12, 2021
*** Congress.gov, March 11, 2021
****. Congress.gov, March 11, 2021