Big news folks! This is my 18th year administering Flexible Spending Account plans. In all that time, the annual maximum for the Dependent Care Assistance account has always been $5,000. For some reason (I haven’t figured out why), they snuck into the American Recovery Plan Act a little pleasant surprise. For taxable years beginning in 2021, the maximum amount permitted has temporarily (for taxable years beginning in 2021) increased to $10,500 (or $5,250 for married taxpayers filing separately). Plans can be amended retroactively to incorporate this change as long as the amendment is adopted no later than the end of the plan year in which the amendment is to be effective. Big news for employees with big daycare expenses! If you want to increase your DCAP maximum, please let us know so that we can amend your plan.
Additionally, to allow your employees to make the most of this temporary increase, you should reach out to those who have signed up for the Dependent Care plan and ask them if they would like to increase their election for the current FSA plan year right away. Unlike health FSAs, DCAPs aren’t subject to the uniform coverage rule, and therefore participant reimbursements are limited to the amount currently in the participant’s DCAP Account (i.e., the amount the participant has contributed so far, minus any reimbursements). Employers must act quickly if they want to increase the limit and make participants aware of the change so they have enough time to increase their DCAP contributions and spread the contributions over as many pay periods as possible.