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Dependent Care Benefits and COVID-19 Outbreak

Given the social distancing orders in most states, many day care facilities, schools, and children’s programs are closed. Thus, a question that is frequently asked is what options do employees have regarding their Dependent Care accounts? Typically, an employee cannot change their Dependent Care account contribution throughout the year unless a qualifying event occurs such as a change in employment status or a change in childcare cost or coverage of dependent care services.

Additionally, there are existing rules within the Internal Revenue Service (IRS) code that can assist employees in utilizing the funds already contributed in their dependent care accounts, including grace periods to allow employees to use any unused funds that remain at the end of the plan year for an additional two and a half months. For example, this would allow employees with dependent care benefits that operates on a calendar year basis to use their 2020 funds for eligible dependent care expenses incurred through March 15, 2021. An employer may also allow terminated employees to spend down their account balances rather than immediately terminating the account, thus forfeiting the unused funds.

The attached Compliance Bulletin provides guidance and considerations for employers in administering Dependent Care plans during the current pandemic.

Read the Compliance Bulletin.

Contact your Cowden representative for more information on this or other compliance issues.