DCAP Payroll Contributions: Information for Employers Now and in 2021
The end of the year, and specifically during open enrollment, is a time during which many people budget for anticipated expenses for the coming year. However, 2021 will not bring about a return to pre-COVID-19 “normal,” at least for the first several months. For those employees with dependent care assistant program (DCAP) accounts, also known as dependent care Flexible Spending Accounts (FSAs), this work from home situation has implications for open enrollment which employers should address now.
DCAP open enrollment in fall 2020
Because of the current status quo in working from home for many, during open enrollment employers can inform their dependent care account holders team members to be cautious about initiating payroll contributions for next year. When every penny counts during these uncertain times, you don’t want employees to set themselves up to lose their DCAP money because they didn’t incur anticipated childcare expenses while working from home.
Instead, remind employees to be cognizant of how much they budget and elect for their 2021 DCAP; DCAPs are flexible and allow for election changes when cost and providers change. But, DCAPs do not offer refunds – meaning if dollars are elected but go unspent, they will be forfeited. Employees can re-adjust their election amounts if their daycare financial situation changes later in the year if it meets an approved IRS qualifying event.
Unused 2020 DCAP balances
Employers also have a few choices when it comes to leveraging unused DCAP funds from 2020. When DCAP fund balances are forfeited back to employers under the “use it or lose it” rule, employers can:
- Apply it to administrative fees for next year.
- Divvy up the total forfeited amount evenly among all employee dependent care FSA account holders. (This “refund” must be taxed as income.)
- Make contributions to employee dependent care FSAs for 2021.
*Employers should speak with a tax or legal advisor when making decisions about unused DCAP contributions.
In reality, none of us anticipated 12 months ago that an ongoing health crisis would disrupt everyday life for billions of people around the world. And no one certainly forecast that a pandemic would affect routine, matter-of-fact life assets like a dependent care FSA. Questions are bound to continue to roll in from clients and account holders. Further is here to help. If you need more information, please reach out to Agent Services at 888-460-4015.