INCREASE TO DEPENDENT CARE FLEXIBLE SPENDING ACCOUNT LIMIT

Increase to Dependent Care Flexible Spending Account Limit

The American Rescue Plan Act increases the maximum amount that may be excluded from an employee’s gross income under a dependent care FSA from $5,000 ($2,500 if married filing separately) to $10,500 ($5,250 if married filing separately) for any taxable year beginning in the 2021 tax year. Employers may, but are not required to, permit eligible employees to make higher contributions to their dependent care FSAs for 2021. This permitted change by the employer requires an amendment to the dependent care FSA. Retroactive amendments are permissible, provided that the amendment is adopted no later than the last day of the plan year in which the amendment is effective, and the plan is administered consistently with the terms of the amendment.