Skip to content

IRS Explains COVID-19 Relief for Dependent Care Assistance Programs



IRS Information Letter 2020-0023 (July 30, 2020)

Available at

The IRS has released an information letter responding to an inquiry regarding unused amounts in a participant’s dependent care assistance program (DCAP) (also referred to as a dependent care flexible spending arrangement) because her children’s summer camp was closed due to COVID-19. The participant indicated that she had stopped making contributions to her DCAP and asked whether any exception would allow a refund of unreimbursed DCAP amounts.

The letter explains that under IRS Notice 2020-29, employers may amend their cafeteria plans to provide participants with increased flexibility to make midyear election changes (as it appears this participant’s employer did), and to extend the period for incurring DCAP claims to the end of 2020 (see our Checkpoint article). The letter also specifies that the relief does not modify the rule that an employee cannot receive amounts from a DCAP other than as reimbursement for dependent care expenses.

EBIA Comment: This letter is a reminder that IRS Notice 2020-29 did not alter key cafeteria plan principles: Retroactive election changes generally are not permitted, and unused contributions must be forfeited subject to limited exceptions (e.g., for health FSA carryovers or a grace period). As the end of the calendar year approaches, and many day-care options remain closed or are operating at limited capacity, it seems increasingly likely that some DCAP participants may not incur day-care expenses equal to their contributions (even if they stopped contributing midyear). Stakeholders have encouraged the IRS to grant additional COVID-19-related relief (e.g., so that employers may give employees more time to use their contributions or allow cash-outs of unused amounts), but whether such relief will be granted remains to be seen. For more information, see EBIA’s Cafeteria Plans manual at Sections XIV.A.4 (“COVID-19-Related Election Change Relief for Calendar Year 2020”) and XVI.N.2 (“Extended Period for Incurring Health FSA and DCAP Expenses (Discretionary)”).

Contributing Editors: EBIA Staff.

More answers