@Jaguar wrote:
Hi,
Regarding your statement, “There is also no need for anyone to pay a penalty or to forfeit money in a dependent care account this year due to the coronavirus. The IRS has issued guidance that if a persons child care circumstances have changed due to the coronavirus, they may cancel or amend their dependent care election during the year, which is not normally allowed. Therefore, if you know you won’t be able to spend the money you can cancel the account for the year.”....is this really true?
My understanding is that just because you cancel/amend your dependent care election mid-year due to the coronavirus, money may no longer be deducted from your paycheck, however, you either have to claim a legitimate dependent care expense or forfeit any money that has ALREADY been deducted from previous paychecks. Is this accurate?
if not, how can someone “return” the amount that has already been deducted from previous paychecks?
You are correct that money, once in the account, can only be spent on qualified care. The IRS released their FSA relief plan in May, which, if acted on immediately, would have allowed you to keep up to 7 months of funds out of the account. Your employer should have notified you of the opportunity to change your FSA. There are no indications (yet) that would allow money to be removed or used elsewhere, it might take a change in the law rather than administrative action.
Your employer can also create a grace period if they don't already have one, that might allow you to use the 2020 DCFSA for care provided in the first 2 months of 2021. The IRS could potentially extend the grace period as well, but have not done so yet.
