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Dependent Care FSA- incurring expenses while children are home


403bear
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I am aware of the conversation surrounding the issue of mid-year changes to DCFSA elections with changing costs of care related to COVID-19 stay-at-home orders. However, is anyone aware of any thinking about employees in the following situation: employee pre-paid childcare costs at beginning of school year, as many care providers require, making a DCFSA election to cover the costs. In the typical case, employee would be eligible for reimbursements as expenses are incurred, that is, when services are rendered as the children go to the care provider. Now, the care provider is closed and the children are at home. No services are being rendered. However, some care providers are not giving refunds, so the childcare costs remain for the employee even though the children are not going to the care provider. Is there any sort of relief for this situation, or is the answer that the employee is stuck with a cost which is now ineligible for DCFSA reimbursements because care is never actually provided? Thanks for any insight!

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Isn't the issue of whether the "costs remain for the employee" a contractual issue between the employee and the care provider? If the employee demonstrates to the plan administrator that it is in a dispute as to whether the amounts are owed, at least arguably the plan should not pay to provider until the dispute has been resolved one way or the other.

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

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Thanks, Luke. I would agree with that analysis if the DCFSA was set up to directly pay the provider on an on-going basis as services are rendered. However, in this case the employee already paid the childcare provider at the beginning of the term and the DCFSA reimburses the employee once services are rendered. So the money is already out of the employee's pocket, but seemingly not eligible for reimbursement from the DCFSA, at least from the date that the children were not allowed to attend care. 

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29 minutes ago, 403bear said:

Thanks, Luke. I would agree with that analysis if the DCFSA was set up to directly pay the provider on an on-going basis as services are rendered. However, in this case the employee already paid the childcare provider at the beginning of the term and the DCFSA reimburses the employee once services are rendered. So the money is already out of the employee's pocket, but seemingly not eligible for reimbursement from the DCFSA, at least from the date that the children were not allowed to attend care. 

403bear, it seems to me that there may be distinction to be made between (a) a prepayment that can only be reimbursed as services are provided and (b) paying for services that would be rendered now, if they could, but cannot and employee cannot stop requirement for payment. Probably worth researching.

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

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Without seeing the employer’s written plan, we don’t know what conditions it sets.

 

If the plan is no more restrictive than fits Internal Revenue Code § 21(b)(2) and § 129(d)-(e):

 

Might a fee for the childcare provider’s service and availability have been a reimbursable expense when the employee paid it?

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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