Summer Camp Cancelled? Did you Know You Can Change Your Dependent Care FSA?
Many parents are contending with a slate of summer camps being cancelled for this summer. If you set your Dependent Care Flexible Spending Account’s annual goal based on summer camp fees – you may want to lower your goal, or discontinue participation in the plan altogether. This situation is trickier than it may seem, so read carefully to best understand how to make the most of your account and not lose money as a result of the camp closure.
The basics: as a reminder – Dependent Care Flexible Spending Accounts are made available to cover care expenses for dependent children up to age 13. Employees make an irrevocable election to contribute tax free dollars each year for the following year. This is called the “goal amount”. When a “qualifying” caregiving expense is incurred – you may submit it to our vendor WageWorks and you would be reimbursed from your tax free savings account. The benefit to you is to use the amount of your earnings that would normally have gone to taxes for your expenses. The most commonly used forms of qualified expenses are after-school programs, day care, nannies and summer day camp (overnight camps are not reimbursable). Per the IRS rules for this plan, money not used during the calendar year is forfeited and lost. This means if claims are not incurred in 2020 – you cannot get that money back out of your account.
Why it matters, if your summer camp has cancelled. With Dependent Care FSA, the caregiving event has to have happened while you were a member of the plan in order to be claimed. Which means if you paid for summer camp in February – you cannot claim for it until after the actual camp dates have happened. And since some summer camps will now never happen, you would not be able to claim those expenses against your account. So if the only caregiving need you had was summer day camp – you will not have an opportunity to re-claim the funds you have contributed into your Dependent Care Account this year.
What can you do about it? The rules for the plan are set by the IRS. So while there is not much you can do about changing the rules – there are a few things you consider doing to avoid any loss. First, is there something else from a caregiving perspective that you will be doing which could use your account balance instead of camp? For many just because camp is cancelled doesn’t mean that the caregiving needs will be. For more on summer camp caregiving alternatives – see this article on programs through our relationship with Bright Horizons. If the alternative to camp will mean kids hanging around the house without a nanny or babysitter, then you may want to consider curtailing your future contributions into the plan. Expenses paid to certain relatives (e.g., grandparents who are not the employee’s tax dependents) are reimbursable. Further, a babysitter/nanny need not be licensed in order for expenses to be reimbursable. This can be done by calling the Benefits Center at 1-800-220-1716. This will not get you back what you have already contributed but it will at least prevent any future loss.
What about my current balance in the plan? Your year to date balance can be viewed on WageWorks.com. Consider whether you have incurred any qualified expenses that maybe you hadn’t submitted for so far this year. Here are some to think about:
- Before and after school care
- Babysitting and nanny expenses
- Daycare, nursery school, and preschool
- Transportation – If a care provider takes a qualifying person to or from a place where care is provided.
- Housekeepers if their services benefit the dependent you are applying for.
Keep in mind though that should you discontinue contributing into a Dependent Care FSA you cannot submit for any claims that occur AFTER the date you stopped contributing. Therefore if you have a balance you wish to use, but have not yet incurred eligible expenses, consider instead to lower your goal amount even down to $1 more per paycheck just to keep your account open. For example if your original goal amount was $5,000 and you do not wish to contribute more due to summer camp closure but you have $1,200 in the account and have not yet incurred eligible expenses, you can figure out how many more paychecks are left this year and then alter your goal amount to be $1,200 + $1 for each remaining pay period. This will result in only $1 more coming out of each of your paychecks but at the same time – will give you full access to claim against your balance until the end of the year.
Another important caveat to the Dependent Care FSA plan is that any parent or guardian residing with the child must be working in order to apply for this tax free benefit. An employee is not prohibited from participating in the dependent care FSA if a spouse is unemployed – the employee simply wouldn’t have eligible expenses during the period when the spouse is unemployed and not looking for work. If a spouse is temporarily unemployed, the employee could and may want to continue participating in the FSA so that amounts already contributed to the FSA will remain available for expenses incurred later in the year (i.e., when the spouse returns to work). IRS publication 503 sets forth all of the rules around Dependent Care FSA accounts. You can review that document here: https://www.irs.gov/pub/irs-pdf/p503.pdf
Questions? Call our vendor WageWorks at 877-924-3967.