IRS Provides Additional Guidance on DCAPs During COVID-19 Pandemic

May 22, 2020 | COVID-19, GTM Blog

The IRS is providing employees with more options for unused amounts in their DCAPs including an extended period for incurring expenses as a result of the COVID-19 pandemic.

The IRS recently announced more options for unused amounts in dependent care assistance programs (DCAPs).

These options include an extended period for incurring DCAP expenses. The change is designed to allow your employer to respond to changes in your needs as a result of the COVID-19 pandemic.

Due to the health crisis, you may be more likely to have unused amounts in your DCAP, especially if you laid off your nanny or didn’t incur daycare center expenses due to facility closure.

The IRS has now allowed your employer to permit you to apply unused amounts remaining in a DCAP at the end of a plan year ending in 2020 (or a grace period ending in 2020) to pay or reimburse expenses incurred through Dec. 31, 2020.

You may also prospectively revoke an election, make a new election, or decrease or increase an existing election for your DCAP. A plan may permit any of the election changes described in the notice, regardless of whether they satisfy existing mid-year election change rules.

As a household employer, you can use a DCAP to reimburse your nanny’s wages. Your employee needs to be paid legally in order for you to take advantage of the tax savings from a DCAP.

GTM can help

There are even more benefits for you when your nanny is paid on the books. Get the full scoop with a complimentary, no-obligation consultation with a household employment expert. Just call (800) 929-9213 to learn more.