Dependent Care Accounts and COVID-19

Due to the COVID-19 pandemic, schools and day care facilities have been forced to close. With the lack of availability and, in some cases, need for childcare, employees are being encouraged to re-evaluate their Dependent Care Assistance Program (DCAP) contributions and consider alternate uses for these funds.

Under ‘normal’ circumstances, DCAPs allow employees to pay for qualifying dependent care expenses, such as day care expenses, on a tax-free basis, up to certain limits. In light of our current climate, employees may want to change contribution amounts or may be concerned their already accumulated funds will go to waste.  

To assist employees impacted, DCAPs can be designed to:

  • Allow employees to change their pre-tax elections when there is a change in employment status or if there is a change in cost or coverage of dependent care services.
  • Include a grace period to allow employees to use unused funds that remain at the end of the plan year for an additional two and a half months.
  • Allow terminated employees to spend down their accounts rather than immediately forfeiting the unused amounts.

We encourage employers to review and become familiar with the rules surrounding their DCAPs in regard to mid-year election changes, legal restrictions, grace periods, and spend-down provisions in instances of termination.

For more detailed information and action steps for employers looking to assist their employees with their DCAPs, click here.


Questions? Contact the Creative Benefits Team at 866-306-0200 or solutions@creativebenefitsinc.com.