Q.- We have an employee who wants to stop making contributions to her Dependent Care FSA now. She asked if she can start contributions again in the fall if she decides to send her children to day care. Can we allow this?
A.- Perhaps. In Notice 2021-15, the IRS changed the Code section 125 mid-year change rules and allowed employers to amend their flexible spending account plans to allow prospective election changes for plan years ending in 2021 for any reason, in any frequency.
A copy of Notice 2021-15 may be accessed here -
The applicable language says-
“Thus, an employer, in its discretion, may amend one or more of its § 125 cafeteria plans to allow each employee who is eligible to make salary reduction contributions under the plan to make prospective election changes for plan years ending in 2021 regarding a health FSA or dependent care assistance program, regardless of whether the basis for the election change satisfies the criteria set forth in Treas. Reg. § 1.125-4. In particular, subject to the limitations discussed later in this section, an employer may amend one or more of its § 125 cafeteria plans to allow employees, on a prospective basis, to (1) revoke an election, make one or more elections, or increase or decrease an existing election, for plan years ending in 2021 regarding a health FSA, or (2) revoke an election, make one or more elections, or increase or decrease an existing election, for plan years ending in 2021 regarding a dependent care assistance program …. An employer using the relief provided under § 214(e) of the Act and this notice is not required to provide unlimited election changes but may, in its discretion, determine the extent to which election changes are permitted, provided that any permitted election changes are applied on a prospective basis only ….”
If your plan has been amended to adopt these rules, you will be able to permit the requested change. If your plan has not been amended to adopt these rules, the request should not be allowed.
