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Mid-year Election Changes to Dependent Care FSA During COVID-19 Emergency

April 03, 2020

Question: Does the COVID-19 emergency qualify as a reason for an employee to be able to make mid-year election changes to their dependent care FSA (also called a dependent care assistance plan or DCAP)?

The answer depends on which type of plan the employee wishes to change, and what type of change they wish to make, but the rules are the same now as they were before the current pandemic.

Mid-year election changes for FSAs are generally governed by 26 C.F.R. 1.125-4. These rules allow plans to warrant certain types of mid-year changes. Employees making an election change under any of the circumstances below must make a change that is consistent with the reason for making the change.

Change in status — employment change. Under IRS rules, an employee can make a change to their FSA (health or DCAP) election if the employee, the employee’s spouse, or the employee’s dependent loses employment.

Cost or coverage change — DCAP only. Additionally, a plan can allow an employee to change their dependent care FSA election if there is a change to childcare “cost or coverage” — essentially a change in child care provider or a change in the cost of child care coverage.

The following illustrations from IRS regulation are helpful. In all of the examples below, the employee would be allowed to make a change to their DCAP election that corresponds to the change in cost or coverage.

  • Employee A is married to Employee B and they have one child, C. Employee A’s employer, M, maintains a calendar year cafeteria plan that allows employees to elect coverage under a dependent care FSA. Child C attends X’s on-site child care center at an annual cost of $3,000. Prior to the beginning of the year, A elects salary reduction contributions of $3,000 during the year to fund coverage under the dependent care FSA for up to $3,000 of reimbursements for the year. Employee A now wants to revoke A’s election of coverage under the dependent care FSA, because A has found a new child care provider.
  • Employee D is married to Employee E and they have one child, F. Employee D’s employer, N, maintains a calendar year cafeteria plan that allows employees to elect coverage under a dependent care FSA. Child F is cared for by Y, D’s household employee, who provides child care services five days a week from 9 a.m. to 6 p.m. at an annual cost in excess of $5,000. Prior to the beginning of the year, D elects salary reduction contributions of $5,000 during the year to fund coverage under the dependent care FSA for up to $5,000 of reimbursements for the year. During the year, F begins school and, as a result, Y’s regular hours of work are changed to five days a week from 3 p.m. to 6 p.m. Employee D now wants to revoke D’s election under the dependent care FSA and make a new election under the dependent care FSA to an annual cost of $4,000 to reflect a reduced cost of child care due to Y’s reduced hours.
  • Employee G is married to Employee H and they have one child, J. Employee G’s employer, O, maintains a calendar year cafeteria plan that allows employees to elect coverage under a dependent care FSA. Child J is cared for by Z, G’s household employee, who is not a relative of G and who provides child care services at an annual cost of $4,000. Prior to the beginning of the year, G elects salary reduction contributions of $4,000 during the year to fund coverage under the dependent care FSA for up to $4,000 of reimbursements for the year. During the year, G raises Z’s salary. Employee G now wants to revoke G’s election under the dependent care FSA and make a new election under the dependent care FSA to an annual amount of $4,500 to reflect the raise.

The following would likely apply in the case of childcare changes during the COVID-19 emergency:

  • Your employee has school-age children and funds their 3 p.m. to 6 p.m. after care using a DCAP. The children’s school closes and your employee now needs to pay for child care from 9 a.m. to 6 p.m. That employee would be allowed under IRS rules to enroll in the DCAP mid-year or increase their DCAP election (up to the maximum of $5,000).
  • Your employee and their co-parent are now working from home due to a COVID-19 stay-at-home order. They no longer need the day care they were using the DCAP to fund. That employee can reduce or cease their DCAP deductions, mid-year.

Employers with questions should look at their written plan documents and check in with their FSA plan providers to see which changes are allowable under their plans.


Keenan & Associates is not a law firm and no opinion, suggestion, or recommendation of the firm or its employees shall constitute legal advice. Clients are advised to consult with their own attorney for a determination of their legal rights, responsibilities and liabilities, including the interpretation of any statute or regulation, or its application to the clients’ business activities.