For most employees, it’s open enrollment season right now. And, for many of us, it’s hard to imagine what we need to sign up for in 2021. If you’re like me, everything we thought we needed for 2020 turned out to be a bit different than we planned.
A year ago, I signed up for all of my company’s benefits. These benefits included a health care plan with HSA (we have two young kids and always hit our deductible), a vision plan (because two of us wear glasses), a dental plan (yep, we all have teeth!), and the trusty Dependent Care FSA.
What is a Dependent Care FSA?
For those who aren’t familiar with it, a Dependent Care FSA allows you to set aside pre-tax dollars (up to $5,000 in a year) to use towards the care of your dependents. Most people, myself included, use this for their kids. We used it for daycare when my kids were in infant care, toddler care, and even preschool. Now that they are in elementary school, we’ve used it for before and after school care through our school district
How does a Dependent Care FSA help you?
You might be wondering why it’s worth it to sign up for a Dependent Care FSA. If you are in the 20% tax bracket, using one to pay for childcare means that you’ve essentially saved yourself $1,000 since the $5,000 was taken out before taxes. This means that you’ll never pay tax on that money.
What’s the catch? It’s “use it or lose it.” This means that if you don’t spend the $5,000 in a year, you don’t get it back. Instead, your employer gets to keep it.
In October 2019, with two kids in before and after school care plus full-time summer care, we were projected to spend at least $12,000-$15,000 in childcare in 2020. For us, signing up for a Dependent Care FSA was a no-brainer.
Typically in January of each year, I submit all of my receipts and get the $5,000 as one nice large deposit. This is great for planning the year’s vacations with these funds. However, with everything else going on, I hadn’t thought at all about this account this year.
Until I opened my 2021 Open Enrollment Packet.
COVID-19 and Dependent Care FSAs
That’s when it hit me. Due to COVID-19, my kids haven’t been in childcare since March. There were no summer camps. There is no way we spent anywhere close to $5,000 on childcare this year.
I will refrain from listing all of the swear words that went through my head when I realized this. Financially, one of the worst feelings is the feeling of lost money. (Google “loss aversion” to learn more about the science behind how and why this feels so crappy.)
But guess what?
You can get your Dependent Care FSA money back for 2020!
How to Get a Refund on Your Dependent Care FSA in 2020 Due to COVID

The great news is that the IRS changed the rules in May 2020 due to coronavirus. You can stop your contributions to your FSA, even retroactively.
The full IRS bulletin is here. In short, it allows cafeteria plans (aka the setup for your Dependent Care FSA) to “evoke an election, make a new election, or decrease or increase an existing election regarding a dependent care assistance program on a prospective basis.”
In plain English this means that you can:
- Sign up mid-year, or even end of year, for a Dependent Care FSA and have it eligible for the full year 2020. (Perhaps due to COVID you actually need to increase your dependent care expenses because now your kids are in daycare more often.)
- Stop and cancel your Dependent Care FSA. Again, you can do this immediately and apply it retroactively.
- Change the amount you contribute to a Dependent Care FSA. Depending on your circumstances, you can either decrease the amount you would contribute or increase it.
This will help many families, including mine. Since we have been working from home and not using any child care since March because of COVID, the rules allow me to stop my FSA and retroactively get my money back (which will now be taxed) for the amount I don’t need.
For example, if I spent $1,000 monthly on childcare from January through March, I would only need $3,000 in my Dependent Care FSA. If I’ve already contributed $4,000 to my plan, I would want to stop the next $1,000 of contributions. I’d also retroactively get a refund of $1,000 of contributions. Otherwise, I will have over-contributed and lost $2,000 this year.
How to Stop Your Dependent Care FSA Midyear Regardless of COVID
This IRS guidance was voluntary. Employers and plans were not required to implement it.
But, have no fear. Even if your employer didn’t elect to adopt these new rules, you can still stop your FSA effective immediately. This is because all plans allow for changes mid-year if there are certain “qualifying events.”
The qualifying events to change your FSA mid-year include the following:
- You give birth to or adopt a child (This allows you to increase your election)
- Your dependent is no longer eligible for childcare, e.g., a child turns 13 years old
- Your child no longer resides with you after a divorce
- You have a change of daycare provider (This allows you to stop or decrease your election if the new provider is cheaper)
- The cost of care changes (This allows you to stop or decrease your election)
- Your need for care changes due to a job change or change of work hours (This allows you to stop or decrease your election)
What does all of this mean? Even if you can’t change your FSA midyear due to the new COVID rules, you still can decrease or stop your election immediately if you took your kid out of daycare due to COVID. You can’t get your money back, but you can save $1,000 or so over the next two months.
What to Do Next to Stop Your FSA Contributions
In order to change your contributions immediately, I recommend that you contact your human resources department to explain your situation and ask how to make changes. To make changes under the “regular” rules, you may be able to go into your benefits or FSA portal and elect to make an immediate change.
To qualify under the COVID rules, you will likely need assistance from your HR department.
Personally, I wish I had been aware of this change earlier in the year. Thankfully, I was able to make the changes I needed so I won’t be in a “use it or lose it” spot at the end of this year.
Were you aware of these COVID-19 tax breaks? Did you already make a mid-year change?