Back during enrollment season, many parents signed up to participate in a Dependent Care Assistance Plan (DCAP) through their employer. The intention behind a DCAP is that it allows people to put aside funds for child care and save some on taxes, since it is a pre-tax benefit. However, due to the COVID-19 pandemic, most schools and daycare facilities have sent children home; and many in-person summer camps have been replaced by virtual camps. With so many children at home this summer, parents with a DCAP are likely wondering if a virtual day camp counts as an eligible expense. Find out more below.
Before we dive into the virtual day camp question, it’s helpful to understand what a DCAP is and what it can be used for.
A DCAP, also known as a Dependent Care Flexible Spending Account, is an employer-sponsored benefit account. Employees who sign up to participate in one can set aside up to $5,000 per year to pay for a range of childcare and other dependent care costs. These include:
The IRS allows a DCAP to be used for children up to age 13 (or other dependents who may not be able to care for themselves). Employees can only use it for care while they work or go to school. The benefit account cannot be used for expenses like babysitting for a date night.
So, what about virtual day camps?
Parents who would normally use their DCAP to cover the costs of summer care while they work are now registering their children for virtual day camps. Therefore, a burning question during the COVID-19 period is whether a DCAP can cover the costs of a virtual day camp.
According to the IRS, overnight camps are not allowed – only day camps; and on first glance, it seems like a virtual day camp qualifies. Ultimately, though, the answer depends on your employer’s plan and plan documents.
In reality, a virtual day camp is not actually providing a care service. Most parents working from home are still caring for their children; and while Congress has expanded the use of many benefits with the CARES Act, parents still cannot reimburse themselves for child care while working from home.
There is another option, though.
However, under certain situations, you may be able to update your annual election for your DCAP. Here are some circumstances that will allow you to update your election:
Keep in mind, if you update your annual election, there are restrictions. You cannot be reimbursed for money you have already contributed, nor can you receive a reimbursement on claims already paid out. Think about this example:
In this case, you would only be able to reduce your annual election to $2,000 because that is how much has already been deducted for the benefit. You could not go down to $1,000, even though you still have a $1,000 difference between your contributions and claims paid.
COVID-19 has hit the nation hard, particularly for working parents. To find out if you can use your DCAP for virtual day camp, or to see if you can update your election amount, contact your HR or plan administrator.