When are mid-year election changes permitted for a dependent care flexible spending account (FSA)?

When employees make a pre-tax election for benefits offered through a Section 125 cafeteria plan, the employee cannot change that election during the plan year unless they experience an event that qualifies as a permissible election change event under the Section 125 rules. For a dependent care flexible spending account (FSA), the election change rules are a little more flexible than they are for other cafeteria plan benefits. 

The permitted election change events that apply to dependent care FSAs fall into the following broad categories: 

• Change in status. For dependent care FSA purposes, various changes in status such as changes to the employee’s work schedule, an employee’s divorce, and others may affect eligibility for dependent care expenses.
• Change in cost or coverage. Under these rules, certain changes in the cost or coverage of the dependent care FSA will justify a mid-year election change. For example, when there is a change in the cost of a dependent care provider, a plan may permit a mid-year election change.
• FMLA. Employees who take FMLA leave are entitled to revoke elections of non-health benefits (such as a dependent care FSA) under a cafeteria plan to the same extent as employees taking non-FMLA leave. And certain reinstatement rules apply on return from FMLA leave.

The flexibility for dependent care FSA changes mid-plan year is best illustrated by the examples found in §1.125-4(f)(6). Under dependent care FSA election change rules, a change in the employee’s or spouse’s work schedule, a change in provider, a change in provider availability, a change in daycare due to change in school schedule, etc., would all likely permit a mid-year change in dependent care FSA elections. 

Remember that, like all election changes, some of these are permitted but not required by IRS rules. Therefore, it will always be necessary to review the terms of the employer’s cafeteria plan document to confirm whether a particular change is allowed.

Content for the WEX compliance Q&A is provided by Benefit Comply, LLC. Benefit Comply provides employee benefits compliance support and services to brokers, employee benefits consultants, and TPAs nationwide. For more information go to www.benefitcomply.com.

The information in this blog post is for educational purposes only. It is not legal or tax advice. For legal or tax advice, you should consult your own legal counsel, tax and investment advisers. 

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