Some people find that their flexible spending accounts are far from flexible during the COVID-19 pandemic.
Because of the pandemic, many people are not sending their children to daycare or spending money on skilled expenses as they planned.
The money in their accounts is just sitting there, and that could be a problem.
“We made a decision to raise $ 5,000. That is the maximum contribution and that is our normal choice,” said Melissa Vernon, a married mother of 9-year-old daughter in Oconomowoc, WI.
During a normal year, spending that money isn’t usually a problem with school aftercare, summer camps, and work duties that require overnight travel.
“In a normal year, our follow-up care would be about $ 900 from January through early June,” she said. “We only raised $ 378 this year.”
By the time she and her husband could no longer contribute to their account, they had already contributed $ 2,826. Vernon has been able to pay for a few small summer camps and the first few months of follow-up care, but has a lot of money left that she can’t spend.
The options for Vernon and others in this situation depend on the employer and the type of flexible expense account.
What is a flexible spending account?
A flexible expense account (FSA) is an account that you can set up with your employer to set aside dollars before taxes for certain expenses. They are sometimes referred to as cafeteria plans.
Employers take cash from pre-tax paychecks to fund the accounts, which are regulated by the IRS. A third party usually manages the accounts and handles the reimbursements.
There are two types of FSAs:
- HCFSA: This is a health FSA. Individuals can contribute up to $ 2,750 per year to pay for a variety of health and medical expenses related expenses.
- DCFSA: This is an FSA dependent care. Parents with children under the age of 13 can contribute up to $ 2,500 individually or $ 5,000 if married and filing together. The money can be used to pay for day-care centers, pre-school children, pre- and post-school care and summer camps.
Not all employers offer FSAs, but for those who do, there is an annual enrollment period during which employees can decide whether to fund an account and how much to contribute. Employees can only change the amount they contribute during the year if there is a qualifying event such as the birth of a child or a change in marital status.
There is one major difference in the way the two types of accounts are refunded.
In an HCFSA, all of the money you want to contribute is available at the beginning of the year so you don’t have to wait to get the funds ready to use. Basically, your company stands before the money and relies on you to pay it back over the course of the year.
You cannot use the money for a DCFSA until you have deposited it into your account.
So it’s possible to use health care money to pay $ 2,500 for dental work early in the year, even if you only have a few hundred dollars deposited into the account.
If you pay $ 1,000 to reserve a summer camp at a DCFSA earlier in the year, you will have to wait for your $ 1,000 contribution before receiving a refund.
The money you put into an FSA type is “use or lose”. So if you don’t spend it all on skilled expenses, you forfeit and unused money goes to the employer.
If, on the other hand, an employee uses all the resources of an HCFSA and then leaves the company in the middle of the year, the employer no longer has this money.
What happened in 2020
The pandemic has made it difficult for some people to spend all of the money they have set aside in their FSAs, while others need more money than they planned.
At the start of the pandemic, many states asked hospitals to suspend non-essential procedures for a period of time. Schools closed, pre and post school programs closed, and summer camps canceled.
Many parents started working from home or lost their jobs and no longer needed child care.
“It became pretty clear in March that there would be no aftercare costs for the rest of the school year, and then it became clearer that there would be no spending in the summer when the camps were canceled,” said Stephanie Laguna, a mother of two from Rockville , MD, who decided to put about $ 2,500 in a dependent care account by 2020.
Changes for 2020 FSAs
To help with some of these issues, the IRS made changes to FSAs under the Coronavirus Aid, Relief and Economic Security Act (CARES Act).
“It … has provided more flexibility in enabling mid-year elections to FSA plans,” said Yuletta Pringle, HR Knowledge Advisor at the Society for human resource management. “We’re seeing some employers who allow their employees to make changes.”
The changes allow:
- New accounts: The establishment of an FSA is possible outside of the usual enrollment period. Maybe you didn’t need childcare before, but you do now. Maybe you have new health care expenses that you didn’t have before.
- Contribution changes: Increases or decreases in current contributions are permitted without a life-changing event.
- Transfer: HCFSAs are allowed to ship over $ 550 by 2021.
- Payment term: For the plan year ending December 31, 2020, it is possible to extend the period to incur new expenses and use money in the FSA.
In addition, other products with HCFSA funds can be purchased, especially feminine hygiene products and over-the-counter medicines.
Some employers may allow other changes. While this can help workers, it could be a burden on employers.
“Even in a regular year, an employer can lose because an employee can leave the company before the end of the year and their account has run out,” said Pringle.
Laguna received an email from her employer advising her that she could change her contributions to her DCFSA.
“I walked in pretty quickly to stop my contributions, but by the time that went into effect we had already contributed almost half of what I would put aside for the year,” she said. “At this point it seemed pretty clear that there was no way I would be able to spend what I had set aside.”
In an HCFSA this year, the IRS allows a carryover of $ 550 for 90 days into the next plan year, which is usually March 15th. There is no such permission to transfer money for DCFSAs.
Again, this is a permissible benefit, not a guaranteed one.
“Again, it’s based on what the employer has allowed in terms of transfer time,” Pringle said.
What can you do about your FSA?
So what can you do if you still have extra cash in your FSA?
There is still time to spend HCFSA money. Obtain eligible supplies. Get new glasses or buy contact lenses.
Companies could give grace periods for both HCFSAs and DCFSAs, which would give people a little more time to spend until 2021. However, it is not possible to have both a transfer of funds and a grace period. It’s either one or the other.
Companies still have time to allow changes to HCFSAs and DCFSAs. Pringle suggests contacting your company’s human resources department.
“Share your feedback on how changing the legislation would specifically help (you),” she said. “In general, (employers) are thinking about how to help their employees with the pandemic.”
Tiffani Sherman is a Florida-based freelance reporter with over 25 years of experience writing on finance, health, travel, and other topics.
This article originally appeared on www.thepennyhoarder.com