2021 – 02/24 Flexible Spending Accounts (FSAs) for dependent care are a tax-favored way to pay certain expenses, but rules apply. Employees may redeem these FSA funds only as reimbursements for qualified dependent care. The costs must be incurred within time limits, and unused funds must be forfeited. In light of COVID-19, some FSA rules have been eased, but not all. When one taxpayer was unable to use up his dependent care funds due to COVID-19, he asked to have the funds paid to him. However, IRS Information Letter 2020-0027 notes that employers are restricted from returning FSA dependent care funds except as reimbursement of employment-related dependent care expenses. Contact us with questions.
