Child care is an expense many working parents bear, and it can be brutal. Currently, the average day care center charges $211 per week for infant care, reports Care.com, while full-day summer camp can easily cost $2,000 or more per child, depending on where you live.
Thankfully, there's a way to make child care costs just a bit more manageable. By putting money into a dependent care FSA, you can pay for child care with pre-tax dollars, thereby eking out some savings.
A dependent care FSA works just like the more popular healthcare FSA: You allocate funds in advance of your plan year to cover eligible child care costs, up to a maximum of $5,000, and you must use up that balance in the course of your plan year or otherwise risk forfeiting money. For parents who pay for full-time child care, or who rely on school systems to provide care during the year but need to send multiple children to camp, that $5,000 is easily attainable.
This year, however, may be different. Because of the COVID-19 crisis, many child care centers are closed, and many summer camps are at risk of falling victim to a similar fate (though as of this writing, many have not yet made a decision as to whether they'll open for the summer of 2020). As such, you may want to take action if you have a dependent care FSA -- before you risk losing money.
Can you change your FSA election?
Generally speaking, the dependent care FSA election you commit to before your plan year starts is the dollar amount you're locked into. For example, if you sign up to put the full $5,000 into your 2020 dependent care FSA, you'd normally be committed to spending that amount or losing some money. But this year, you may get some flexibility because of COVID-19.
Many FSA providers now allow for the option to suspend your contributions if your day care center is closed, or if you have reason to believe your summer camp won't open either. That way, you'll stop having money taken out of your paychecks that you may not need to spend.
On the other hand, you may have additional child care needs because of the crisis. If your expenses have gone up, you may have the option to increase your dependent care contribution for 2020 if you're not already maxed out.
Of course, all of this begs the question: What happens to the money that's already in your FSA that you may not be able to use? Imagine you allocated $5,000 to your dependent care FSA last year with the intent of using that money to pay for summer camp. Since we're already at the end of April, it means you already have a chunk of money sitting in your account. But if camps don't open, and that's your only child care expense, you won't have a way of using your balance.
Right now, there's no official solution to that problem, but chances are, the IRS will issue guidance on it at some point in the not-so-distant future. You may be given the option to take back those pre-tax contributions, thereby losing the tax break, but also not losing your money. Or, you may have the option to carry existing dependent care FSA funds into the next calendar or plan year. In other words, if you're worried about losing the money you've already contributed, try not to stress -- a lot of people are in the same boat and there's likely to be some sort of accommodation given the unprecedented situation we're in.
COVID-19 is, unfortunately, affecting us in so many ways. If you have a dependent care FSA, reach out to your benefits provider sooner rather than later and see what options you have for managing that account and preventing financial losses.