Which Employee Benefits Should I Review, Change, or Update Now?

It’s quite an understatement to say the last few years have not turned out as we expected. The COVID-19 pandemic has impacted almost every aspect of our lives. As our day-to-day routines change many have found that they are spending less or perhaps spending in a different way. Many are also concerned with the health and wellbeing of their families. Now is a great time to be asking yourself what’s changed and what can I take advantage of when it comes to employee benefits?

Here are a few benefits you may want to consider reviewing:

Flexible Spending Account (FSA) and Dependent Care FSA Contributions

These accounts allow you to save for eligible health care and dependent care expenses in a tax-preferred way but come with a few strings attached. Funds are contributed before tax, and if used for qualified expenses are withdrawn tax-free. However, generally, any funds contributed must be used within the plan year. Those that aren’t used are forfeited. When you were making the decision about how much to contribute to your FSA for 2020, you likely didn’t anticipate two months of canceled doctors, dentists, and eye exam appointments, or a scheduling backlog as health care providers open back up.

Dependent Care FSAs allow you to save up to $5,000 per year for eligible dependent care expenses such as daycare, summer camp, and even adult daycare. They must be used for a dependent of yours that is under the age of 13 or disabled. Just like the FSA, funds contributed must be used within the plan year. With many daycares closed and summer camps canceled, money designated for your Dependent Care FSA can be better spent or saved elsewhere.

Fortunately, the IRS has eased rules to allow more flexibility for employers. You may be able to reduce, stop, or increase payroll contributions to your FSA accounts. Note that your employer is not required to adopt these changes but can adapt their plan documents to take advantage of the newly provided IRS flexibility. Likely, most employers will adopt this change. Now is a good time to see if your employer offers a grace period or rollover of funds to the 2021 calendar year. For more information on your employer’s specific policy, contact your HR department directly.

For more information on the tax benefits of FSAs and Dependent Care FSAs check my blog, “How to get the most bang for your buck: 3 Tax Strategies”

Watch the video below for more information on grace periods, and the use it or lose it feature.