The physical distancing measures brought on by the coronavirus pandemic have made all of your childcare plans uncertain. Will your daycare reopen? If it does, will it be safe to send your kids there? What’s going to happen to before-and-after school care? And if you’d planned to pay for any of this with a dependent-care flexible spending account (FSA), you’re probably wondering if you might lose some of the money you were stashing away to make paying those costs easier.
What’s new for FSAs
In light of the pandemic, the IRS has adjusted its rules to make it easier for people to get the benefits coverage they need. Employers now have the option to offer a mid-year open enrollment period to their employees, allowing people to change, add or remove health insurance and related coverage without needing to prove they had a qualifying life event to warrant changes.
Keep an eye out for two other changes that could affect your FSA:
- If your employer allows you to roll over unused funds into the next year, you can now roll over $550 instead of $500. The maximum contribution amounts are the same: $2,750 per household for a medical FSA, and $5,000 for a dependent care FSA.
- If your employer offers a grace period, meaning you have a few extra months to spend down last year’s funds, they can now give you until the end of 2020 to spend down those contributions.
Your employer can only offer one of those options, if they offer anything in this regard.
“The new ruling is an attempt to address some of the limitations of the FSA,” said Craig Keohan, chief revenue officer at HSA provider HealthSavings. “In many ways, the changes highlight the restrictions of the FSA, because it is an employer-sponsored, use-it-or-lose-it fund.”
These changes aren’t automatic
If your employer announces another open enrollment period, it’s a great opportunity to look at your healthcare and dependent care needs and make changes to your coverage that fit your finances. But there’s no guarantee your employer will make the offer.
“FSAs are really owned and designed by the employer,” said Shobin Uralil, co-founder and COO of health savings account provider Lively. “There are a lot of compliance issues an employer needs to pay attention to.” During the pandemic, he explained, employers may not be able to take on that extra work.
If you’re concerned about your contribution settings or your overall benefits coverage right now, don’t wait to hear more from your HR department—ask them if they’ll be hosting another enrollment period. And keep in mind that there may be other changes coming down the pipeline, too.
“We’re operating in a world of more unknowns than knowns,” Uralil said. “I don’t think we’ve heard the last of the IRS in respect to coronavirus.”
What to do if you can change your benefits
If you don’t think you’ll need childcare anytime soon—or, if you need the extra cash in your pocket right now—Uralil said you may want to stop your contributions. Just keep in mind that the cash in your paycheck will be taxed, unlike your FSA contribution.
But if you think you’ll need care before the end of the year, you might want to maintain your current contribution level or even increase it.
And if your employer reopens that enrollment period, it may be worth looking at your other coverage options. If you’re able to switch to a high-deductible health plan, you can open a health savings account (HSA) that allows you to put aside pre-tax dollars without that “use it or lose it” anxiety—your contributions stay with you year-to-year even if you leave your job.
It may not help with your immediate childcare costs, but shuffling around your contributions on the medical side of things could provide some longer-term stability and comfort amid these short-term fluctuations.