Changes in family status can change health insurance eligibility. But they can also affect consumer-directed healthcare accounts, prompting questions about mid-year status changes. Here’s how family status changes can affect FSA and Dependent Care account elections.
Can I change my health FSA contributions?
Employees enroll in FSA accounts during open enrollment each year. At that time, they must decide on a contribution amount up to the IRS-mandated maximum ($3,050 for 2023).
FSA accounts can be used for qualified expenses incurred by the participant and their tax dependents, regardless of health insurance coverage. If the participant’s family status changes during the year, they may be interested in increasing or decreasing the amount they set aside in their FSA for that plan year.
Increasing FSA Contributions
FSA participants have the same annual contribution limit regardless of family status. If a single person elects the maximum, they cannot increase their contribution if they get married, have a child, or adopt. However, if contributing below the maximum, their plan may permit an increase in response to such changes in family status.
However, finding that their healthcare expenses will be much higher than originally expected does not qualify for a mid-year change. They must wait until the next plan year to increase their annual contribution.
Decreasing FSA Contributions
An employee may want to decrease contributions if their marriage ends or a child no longer qualifies as a dependent. Your plan may allow a decrease in response to this change in family status. Check your Summary Plan Description (SPD) or with your benefits representative to determine if your plan allows it.
What about Dependent Care FSAs?
Dependent Care FSAs (DCFSAs) help parents save taxes on expenses for the care of dependent children (or elders). Like health FSAs, dependent care FSAs have limits but work differently. Single parents, and married parents who file taxes jointly, may contribute up to $5,000. Married parents who file separately may contribute $2,500 each. Enrollment in a dependent care FSA may be allowed by your plan mid-year in response to birth, adoption, or a change in circumstances necessitating paid child care that wasn’t previously needed.
Increasing Dependent Care FSA Contributions
Participants may be able to increase their contributions under certain circumstances if they are not already at the maximum level. For example, an employee uses a home-based daycare and pays $3,500 yearly for childcare. But the caregiver decides to retire and close down, so they must move their child to a childcare center that costs $5,200 a year. Their plan may allow them to increase their annual contribution to the annual maximum of $5,000.
Again, check with your HR or benefits administrator regarding the availability under your plan of contribution changes in response to changes in family status or circumstances. Also, remember that dependents are only eligible for dependent care coverage until they reach their 13th birthday. Once a child reaches 13, regardless of when that occurs during the plan year, no further dependent care expenses are eligible for reimbursement.
DataPath, Inc. creates innovative solutions for tax-advantaged, post-tax, well-being, and compliance benefits administration, including FSAs, HRAs, HSAs, LSAs, COBRA, and more. Please enter your email (above right) to be notified when new blog articles are published.