Contributing to a flexible spending account (FSA) for health care or the dependent care assistant program (DCAP) saves on taxes but takes careful planning since the payroll deductions to fund the accounts are selected once a year during open enrollment and unused funds can be lost. Because COVID-19 may have wreaked havoc on some personal budget projections, a temporary policy change will allow ISU employees to adjust FSA and DCAP contributions through December for pandemic-related reasons.
FSA items expanded
A reminder: A federal COVID-19 relief package in March expanded what purchases can be reimbursed with a flexible spending account to include a wide range of over-the-counter items such as menstrual care products and nonprescription medicines. The rule changes are retroactive to Jan. 1, 2020.
Employees choose the amount they want to set aside in FSA and DCAP accounts for the coming year during annual open enrollment held in November. Money contributed to the accounts is not subject to income or payroll taxes but can only be used for reimbursing eligible health care and dependent care expenses. Any funds left unused in a DCAP account are forfeited. Beginning with the 2020 plan year, up to $550 of unused FSA funds will carry over to the next year.
Typically, the amount employees contribute to these accounts can be modified during the plan year only after a change in family status. That includes a birth or death in the family, or changes in employment, marital status or child custody arrangements.
Effective now through the end of the 2020 calendar year, the university will allow employees to change FSA and DCAP contributions for reasons connected to COVID-19. To make a change, fill out a request form and explain the reason for the change. Email the request to benefits@iastate.edu.
Staff in the payroll, benefits and tax office will review requests and apply approved changes starting with the employee's next still-pending paycheck.
Annual amounts for FSA and DCAP can't decrease below what an employee has already contributed or the amount that has been distributed in claims. Increases are limited by the maximum annual amounts, which are $5,000 for dependent care and $2,700 for health care.
For questions related to this change or future tax law changes due to COVID-19, contact the payroll, benefits and tax office at fbac@iastate.edu.
