Dependent Day Care Election - OK to cancel due to financial hardship?

[Guest Darla K]

We have a client who is wanting to cancel her Daycare election because she feels she cannot be without the money right now.

We have paid her the remaining balance on her account for the receipts that she has turned in for reimbursement up to her amount that has been deducted from her paycheck. So she has no at risk amount.

Can she stop her enrollment since there is not a "change in family status"? Is financial hardship considered a reason for her to change her election to $0.00?

[papogi]

No. She can't stop the account in this case. As long as she gets her reimbursements in a very timely manner, she's making her money stretch out by having the DC account. If she stopped the account, she'd be paying the daycare provider with after-tax dollars. I would re-explain the value of the account, as it is actually helping her out here. Again, this assumes that the reimbursements are coming on a timely basis.

[Kirk Maldonado]

You should ask her if her circumstances have changed, which is why she is experiencing the financial hardship. It is possible that her circumstances have changed in way that would permit her to make a new election (if that is permitted under your plan document).

[Guest Darla K]

She has had no change in family status according to all the regs I have from the IRS. She is a new participant for the Dependent Daycare Reimbursement Account and is still not fully understanding how it works.

We have explained to her how it works and that she will get a reimbursement check for the amount of her claim, up to the amount that has been deducted, when we run her company's plan which is every two weeks. Her employer has set up the plan to run with their bi-weekly payroll cycle. She is thinking she should get paid every time she turns in a claim, which we have informed her this is not the case because she turns in a claim every week.

She feels she cannot be without the money for two weeks and that it is not benefitting her. We have tried to inform her that it will help her save in taxes in the long run, but she is convinced that it won't help to her.

What should we do? Can she get out of the plan or not? We feel she cannot get out of the plan either but any help would be appreciated.

[papogi]

I say no.

[Guest Darla K]

ok thank you papogi, that is what we thought, but thank you for the assurance

[Lisa Hand]

One more option is if she has had a change in cost of her DCA since change in cost or coverage applies to that category. If it has reduced or stopped then she could make the corresponding change.

[Guest lschaab]

If she changes from a qualified to a non-qualified provider, she should be able to change her election, if the Plan permits. However, I still don't think she understands the plan, she loses if she finds a legitimate way to get out and still has the expense.

[Guest Lesley Sifers]

I have found that it IS difficult for some people to manage a DCAP because they have no money managment skills. The advantage of saving taxes does not mean much to some folks - is she already overwithholding to get a BIG tax refund? Maybe she should be claiming additional exemptions on her W4 - that would increase her paycheck. Or, does she possibly qualify for the EIC? I agree that she has no event that allows her to stop the DCAP - so, unless you can educate her or help her find some alternatives you are going to have a disgruntled employee in your midst. (I come from HR - which accounts for my way of thinking!) I do find this to be a common problem because when some people get their reimbursement check, they don't earmark it for paying the childcare bills - once again, the real problem is poor money management and you may not be able to do much about that.