IRS releases new guidance that could save parents money amid coronavirus outbreak
Americans who use a dependent-care account to pay for children's daycare or summer camp can likely now make mid-year changes to their plans, according to new guidance issued this week by the Internal Revenue Service.
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On Tuesday, the IRS gave employers permission to let employees make changes to their flexible spending accounts as the coronavirus dramatically alters the type of child care that people need (or can access).
A dependent-care flexible-spending account, or FSAs, allows employees of participating companies to contribute up to $5,000 of pretax earnings to pay expenses for programs for a child under the age of 13. The account money can also be spent on care for an older dependent who cannot care for themselves.
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When employees incur the expense, they're reimbursed from the account - meaning they never owe tax on that money.
With most of the nation still adhering to social distancing guidelines implemented to slow the spread of COVID-19, child-care centers remain closed in most states. Summer camps are widely expected to be canceled soon.
Typically, workers cannot make mid-year changes to their contribution to a dependent-care FSA unless they experience a major life change, such as a divorce, job loss, death or new child.
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If funds are not used by the end of the year on qualified expenses, they're generally forfeited to the company.
But in order for workers to be able to revise their account contributions, companies need to opt-in to the IRS' changes.