Can Dependent Care Elections be Changed Midyear?

Many schools and childcare facilities have been closed due to the coronavirus (COVID-19) pandemic, adding to the challenges employees and employers now face. You may have employees asking if dependent care assistance program (DCAP) elections can be changed or revoked.

If your plan document has been drafted as expansively as IRS rules allow for midyear election changes due to changes in cost or coverage, then it may be possible. The rules apply broadly to dependent care assistance programs (DCAPs), permitting midyear election changes in a variety of circumstances that involve changes in care providers or in the cost of care.

IRS officials have informally commented that a DCAP election change is permitted when a child is switched from a paid provider to free care (or no care, in the case of a “latchkey” child). Other circumstances in which IRS rules would allow a DCAP election change include a modification in the hours for which care is provided or in the fee charged by a provider. However, an election change isn’t allowed if a modified cost is imposed by a care provider who is the employee’s relative, as defined in IRS rules.

Note: While the cost or coverage election change rules apply broadly to DCAPs, they don’t apply to health flexible spending arrangements (FSAs). This is one of several areas in which the rules differ for health FSAs and DCAPs.

Contact us or your employee benefits advisors with any questions.