ARPA and Dependent Care FSA: Understanding the Recent Guidance

May 18, 2021
Hall Benefits Law, LLC

The Consolidated Appropriations Act (CAA), which was signed into law in December 2020, allowed for certain relief pursuant to dependent care flexible spending accounts (DCFSAs) as follows:

  • All unused benefits in plan years ending in 2020 may be carried over into the plan year ending in 2021. Similar relief is also available for unused FSA benefit carryovers for plan years ending in 2021 into the plan year ending in 2022.
  • FSAs that provide for a grace period for plan years ending in 2020 or 2021 are allowed to extend that grace period from 2.5 months to 12 months following the end of the plan year.
  • An employee who stops participating in an FSA midyear in plan years 2020 and 2021 may be reimbursed for unused contributions through the end of the applicable plan year.
  • For plan years that end in 2021, FSA plans may allow employees to make a prospective election change to modify their FSA contributions without a status change.
  • Extends the ability to submit claims reimbursement in 2021 for expenses related to a child who attained age 13 during the plan year and who has an unused balance.

The American Rescue Plan Act (ARPA), signed on March 11, 2021, temporarily increases the annual limit on pre-tax contributions to a DCFSA as follows:

  • For single taxpayers and married couples filing jointly, the annual limit increases from $5,000 to $10,500.
  • For married couples filing separately, the limit increases from $2,500 to $5,250.

These changes are effective for plan years beginning after December 31, 2020 and before January 1, 2022. Employers that decide to adopt the new election must amend their DCFSAs by the last day of the plan year in which the amendment is effective. 

HBL has experience in all areas of benefits and employment law, offering a comprehensive solution to all your business benefits and HR/employment legal compliance needs. We help ensure you are in compliance with the complex requirements of ERISA and the IRS code, as well as those laws that impact you and your employees. Together, we reduce your exposure to potential legal or financial penalties. Learn more by calling 678-439-6236.

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Hall Benefits Law, LLC

HBL offers employers comprehensive legal guidance on benefits in mergers and acquisitions, Employee Stock Ownership Plans (ESOPs), executive compensation, health and welfare benefits, healthcare reform, and retirement plans. We counsel a wide spectrum of clients including small, mid-sized, and large companies, 401(k) investment advisors, health insurance brokers, accountants, attorneys, and HR consultants, just to name a few. HBL is passionate about advising clients, and we are dedicated to our mission: to provide comprehensive, personalized, and practical ERISA and benefits legal solutions that exceed client expectations.

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