Late December is when many Americans rush to spend any money left in their Flexible Spending Accounts — those workplace plans funded during the year to pay medical expenses. But if President Trump signs the proposed stimulus package, they will get a temporary reprieve.
One of the many provisions in the stimulus package Congress passed at the beginning of the week allows those who have FSAs to roll over the remainder of their accounts from 2020 to 2021 and from 2021 to 2022. The same rules would apply to Dependent Care FSAs, which are similar plans that benefit an employee’s dependents, such as a young child or an elderly parent.
Workers could set aside up to $2,750 in pretax funds for individuals in Health FSAs and up to $5,000 per family, also before taxes, for dependent care FSAs in 2020. Under normal circumstances, the use-or-lose provisions in these plans generally require that the money be spent by year-end or be forfeited.
The stimulus package also includes other provisions for financial assistance, including continued unemployment benefits, another round of stimulus checks (this time worth at most $600), an eviction moratorium and funding for vaccination distribution.
It’s still not clear whether the president will sign the bill; he has said it doesn’t go far enough.
Dependent Care FSAs assist workers with children under 13, as well those who have a spouse or relative living with them who is physically or mentally incapable of taking care of themselves. Eligible expenses for children include preschool, day care, before or after school care, babysitting and summer day camp, according to the Federal Flexible Spending Account Program, sponsored by the U.S. Office of Personnel Management. Workers can also use Dependent Care FSAs to pay for in-home elder care and senior day care centers.
The changes included in the stimulus bill would be especially beneficial in a year as unpredictable as 2020, said Bryan Jamele, senior director of government affairs at Care.com, a website that connects individuals with caregivers.
Employees must decide whether to open an FSA or Dependent Care FSA — and how much to have set aside — late in the year before they actually fund and use it. So people with FSAs in 2020 had done so in 2019. “Because of the pandemic, they may have projected to put away money and then used some or none at all,” Jamele said.
Americans who have stayed employed during the pandemic may now be working from home and taking care of their own children or elderly relatives, said Bill Sweetnam, legislative director of Employers Council on Flexible Compensation, a nonprofit advocacy group for benefit programs. Because of local government shutdowns and capacity restrictions, some families may not have been able to send their loved ones to day care centers, both for children and adults, leaving money in their accounts unspent.
The stimulus package addresses other components of dependent care too. It extended the grace period for plans in years 2020 and 2021. Previously, employers had the option to offer a grace period for the remaining money in FSAs, to be spent down until about mid-March the latest, Jamele said. In the stimulus package, Congress said the grace period could be extended up to 12 months.
Congress also increased the age for dependent children from under 13 to under 14, and expanded the restrictions around prospective changes to these accounts, so that people could alter their elections during the year without having experienced a birth, marriage or death (as is commonly the only way to make changes to workplace health plans outside of general enrollment), Jamele said.
Even if these changes are signed into law, employers can decide whether to change the rules for their own program. But many likely will, Sweetnam said. “Employers don’t want employees to lose money that they put into these dependent care assistance plans and FSAs,” he said.