The American Rescue Plan Act of 2021 signed into law by President Biden on March 11 includes an increase in the annual limit on Dependent Care Flexible Spending Arrangement pre-tax contributions for calendar year 2021. The limit for this year only has been increased from $5,000 to $10,500 (or $5,250 for married individuals filing separately). This temporary change is optional for employer plan sponsors. Employers wishing to provide this enhanced benefit opportunity to their Plan Participants must amend their Plans to adopt the increased limit for the 2021 tax year.
This change will be relatively straightforward for calendar year Dependent Care Flexible Spending Arrangements. Participants will be allowed to increase their annual elections to take advantage of the increased limits for any expenses incurred during 2021. For non-calendar year plans, the change will be more complicated. The annual limit on Dependent Care pre-tax payroll contributions has always applied on a calendar year basis for all plans and this temporary change to the annual limit does not change that. Therefore, non-calendar year plan sponsors that offer this increased limit to their Participants will need to structure the Participant’s payroll contribution schedule so that the additional contributions are all made within 2021 calendar year payrolls.
Employers wishing to amend their plans to take advantage of the increased limits can submit an amendment request to Admin America here. If you have additional questions about this temporary change to the 2021 Dependent Care FSA limits, you can e-mail Trey Tompkins at firstname.lastname@example.org or you can schedule a call with Trey at an available time that is most convenient for you here.