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"Yes, provided that your plan document has been drafted as expansively as IRS rules allow regarding midyear election changes due to changes in cost or coverage. The rules apply broadly to dependent care assistance programs (DCAPs), permitting midyear election changes in a variety of circumstances involving changes in care providers or in the cost of care."

"Pennsylvania amended its tax law to make amounts contributed to dependent care assistance excludable for income tax purposes. The change aligns Pennsylvania with the federal treatment and is retroactive for the 2023 tax year. Employers may have withheld taxes on dependent care assistance contributions and may have issued Forms W-2 that overstated income."

"A DCAP cannot reimburse payments to an employee's child who is under age 19 at the end of the year or to someone whom the employee (or the employee's spouse) could claim as a dependent.... [The authors] recommend that you include information in your DCAP summary or open enrollment materials about the providers whose care can and cannot be reimbursed under a DCAP."

"The [IRS] announced the launch of a new page ... explaining the Employer-Provided Childcare Tax Credit , an incentive for businesses to provide child care services to their employees.... This tax credit is designed to help employers cover some of the qualified child care facility and resource and referral expenditures associated with providing child care services to their employees."

"Look out for these common stumbling blocks that can trip up any employee.... [1] Skipping dependent coverage ... [2] Misunderstanding dependent care flexible spending accounts ... [3] Frustrations with prior authorizations ... [4] Overlooking health savings account eligibility ... [5] Provider network changes ... [6] Missing or outdated beneficiary information."

21 pages; Nov. 30, 2023. "What's New: The temporary special rules for dependent care flexible spending arrangements (FSAs) have expired."

"Because all claims are subject to the claim substantiation requirements, administrators cannot engage in substantiation shortcuts such as reviewing only a percentage of claims (i.e., sampling) or automatically reimbursing claims that are below a 'de minimis' dollar threshold ... These actions jeopardize the income exclusion that would otherwise apply to reimbursements from these arrangements ... and could cause all reimbursements to be taxable, not just those approved using the impermissible techniques."

"The pilot program offered emergency day care services onsite at the Northern California facility, 'where parents would have the lowest possible barrier to using the new service,' UPS said. Eight in 10 eligible employees participated and took advantage of the service more than once, avoiding more than 120 unplanned absences. Employee turnover among the pilot group dropped significantly, from 31 percent to 4 percent."

"[H]ere's a refresher course on compliance requirements of Internal Revenue Code (IRC) Section 125 cafeteria plans and IRC Section 105.... [1] Definition of nondiscrimination testing; [2] Contributions for highly paid employees and non-highly compensated employees; [3] Applicability to cafeteria plans, including healthcare Flexible Spending Accounts (FSA), Dependent Care Flexible Spending Accounts (DCFSA), Health Reimbursement Arrangements (HRA), and Health Savings Accounts (HSA); [3] Examples of nondiscrimination testing rules; [5] Form 5500 obligations and welfare benefit plans[.]"

"The dependent care FSA limit presents multiple challenges for non-calendar plan years, short plan years, married employees, mid-year new hires, and W-2 reporting."

"If you were to make a 'pros and cons' list ... you might see that numerically, there are more cons that pros. But ... the quality of the overall benefit should be evaluated. Overall, when a participant is aware of the requirements and limitations, evaluates their individual situation, and carefully plans for the use of the DCFSA, the tax savings on a necessary expense makes it all worthwhile."

"Most commonly, employees participate in DCAPs by contributing a portion of their pay under a cafeteria plan. DCAPs can fall into several highly regulated plan categories: [1] they are dependent care assistance programs subject to certain Code requirements; [2] they are flexible spending arrangements subject to additional requirements contained in IRS regulations; [3] they can be (but rarely are) employee welfare benefit plans subject to [ERISA]; and [4] a DCAP offered under a cafeteria plan is subject to Code requirements affecting cafeteria plans."

"Dependent care FSA expenses are not considered incurred until the services for the period are fully provided (e.g., the end of the month). This makes it difficult to pay for such expenses with a debit card when the provider requires advance payment (e.g., the start of the month) [which is] before the FSA can permit payment.... [T]he cafeteria plan rules permit a recurring daycare expense to be initially substantiated and used to load the FSA debit card to pay for each future service period at the same daycare provider."

"[1] Paid leave ... [2] Mental health services/EAP ... [3] Emergency/back-up care ... [4] Lifestyle spending accounts ... [5] Family planning and adoption benefits ... [6] Flexible work arrangements ... [7] Lactation support ... [8] Concierge services."

"Although some parents planned ahead for the cost of summer programs by signing up for a dependent care flexible spending account (FSA) at annual enrollment, they might not understand the ins and outs of how one works. For example, what is and is not covered? And when can participants be reimbursed for expenses?"

"The IRS's latest reminder of the substantiation requirements for health FSAs and DCAPs does not break any new ground -- the rules have been in place for many years and the prohibition on substantiation shortcuts is well known. Nevertheless, it serves as a helpful review of the rules, while also underscoring the potential problems with some current arrangements and making it even more difficult for plans that are not in compliance to say they 'didn't get the memo.' "

"The IRS Office of Chief Counsel has issued Memorandum Number 202317020 to explain the substantiation rules for claims made under health and dependent care FSAs by means of six commonly encountered factual situations, in five of which it concludes that the plan is not a cafeteria plan and the reimbursement is not shielded from income and employment taxes."

"Reimbursements of section 213(d) medical expenses to an employee from a health FSA provided in a section 125 cafeteria plan are included in the gross income of such employee if any expense of any employee reimbursed by the health FSA is not fully substantiated including if any expenses below a certain threshold are not substantiated.... In addition, an employer may not exclude reimbursements of dependent care expenses from an employee's gross income if any expenses of any employee under the dependent care assistance program are not substantiated after the expense has been incurred."

"Policymakers may be interested in tax policy options that incentivize businesses to provide child care for their employees. One existing option is the Internal Revenue Code Section 45F credit. Available data indicate that the 45F credit is rarely claimed, raising questions about whether the credit is an effective incentive and whether employers view providing child care as a net benefit." [IF12379 Apr. 11, 2023]F

"Although the Section 125 cafeteria plan irrevocable election rule is very strict, it is relatively easy to modify a dependent care FSA election because any change in use of daycare, change in a daycare provider, or change in an existing daycare provider's cost generally will qualify as a permitted election change event."

"[It] is important to understand employees' caregiving status and child care requirements. Utilizing tools such as caregiver Employee Resource Groups (ERGs), employee surveys, and open discussion sessions will help determine employees' unique child care needs. Employers should use a range of questions to uncover insights about possible child care options that would benefit their employees and their business."

"These announcements are timely, if not late, given that many employers are already in the middle of open enrollment for 2023. Plan sponsors should act quickly to update payroll and plan administration, along with open enrollment communications, to account for the changes."

"[E]mployer contributions (including non-cashable flex credits) generally cannot exceed $500 per plan year for the health FSA to maintain excepted benefit status.... Therefore, in most cases the maximum health FSA amount available for plan years beginning on or after January 1, 2023 will be limited to $3,050 (max employee salary contribution) + $500 (max employer contribution, if offered) = $3,550 (combined).... Other notable 2023 employee benefit amounts."

"The Consolidated Appropriations Act (CAA) (and other IRS guidance) that extended the grace period and enhanced carryover provisions for Health FSAs (HFSA) and Dependent Care FSAs (DCFSA) will not extend into 2023. Plan sponsors must follow the terms of their plan document provisions that were in effect before the COVID-19 relief was enacted.... [T]he Outbreak period is still in place; it was extended through 2/28/2023 and can be extended again by the President at that time. This generally means that individuals have an additional year to meet certain deadlines."

"[If] the charge is a late pickup fee, ... the fee can be reimbursed under your DCAP, so long as it is for taking care of the child and satisfies the other criteria for reimbursement under your plan and the Code. But if the charge is for late payment of a bill from the day-care center, it probably would not qualify for reimbursement from a DCAP."