Parents May Lose Dependent-Care FSA Money Set Aside for Camps

What you need to know before open enrollment, which begins Nov. 1

A lot of us are getting ready to start choosing our benefits for the year 2021. If you use a dependent-care flexible spending account (FSA), you may want to rethink how much you set aside next year.

Leif and Lowrey Redmond from Washington, D.C., depend on summer camps to keep their two little girls busy. Each year, they add money to Leif’s dependent-care FSA offered by his employer. The pre-tax money can be used to pay for camps, babysitters, daycare or after-school care. Leif says having that flex account in their back pocket really helps take the worry away.

However, when the pandemic hit, summer camps were canceled, leaving many families like the Redmonds scrambling to find alternatives.  

“Luckily for us, a camp that we had attended in person last year, a STEM camp, was being offered virtually so we signed her up for that,” said Leif Redmond. 

But when Redmond submitted the payment for reimbursement, the plan provider said “virtual” camps are not eligible. This took Redmond and many other families by surprise. Redmond said even though the camp was not in-person, it still provided supervision and entertainment for his daughter, allowing him and his wife to work from home.

However, according to a human resources consultant, virtual camps are missing one critical piece required for eligibility under dependent-care FSAs.

“These programs are really designed specifically for the safety of a child, not so much for the convenience of working parents,” said Susan Anderson, VP of Services for Mammoth and ThinkHR. “In the case of a virtual camp like this, the spirit of the law is that the child must be in the physical custody of the caregiver and be protected from harm.”  

The Redmonds would like to see the IRS rules relaxed during the pandemic to cover virtual camps so their family and others don’t lose money they’ve set aside at the end of the year.

News4 brought this to the attention of U.S. Sen. Mark Warner from Virginia. He’s the ranking member of the Subcommittee of Taxation and IRS Oversight. When we followed up with his office later, they told us the senator is researching the issue and considering adding it in the next relief package from Congress.

With open enrollment Nov. 1, parents are encouraged to start saving.

“If a parent is going into 2021 knowing full well that there is already a program in place, babysitter, preschool, or after school care in their community that meets the spirit of the law around the safety of the children, then, by all means, they need to be saving their money,” said Anderson.

With the uncertainty around camps next year you may want to just stash some money away each month so you don’t lose any unused funds in your dependent-care FSA.

And while the IRS did allow mid-year changes to contributions over the summer due to the pandemic, there’s no guarantee that will happen again.