There’s Money Stuck in Your Dependent Care Account. Now What?

You did everything right. You read the email from human resources and signed up for a dependent care account. Your employer siphons pretax money from your paycheck, and you’ll get a little back upon request after paying each day care bill, or in a lump sum after covering summer camp costs.

Except now your day care is closed, and there may not be summer camp. You have locked away four figures of money that you may not be able to get back, since if you don’t use it before the end of the year, you lose it entirely and your employer gets to keep it.

In the broad scheme of things — a pandemic, tens of millions of people with no job at all — it may not seem like a big thing. But there are an estimated 5.2 million dependent care accounts, according to the financial research firm Aite Group, and many of their holders have lost at least some income or have spouses who have.

It’s a big enough problem that legislators in Washington are now trying to solve it. But first, a brief reminder on how these accounts are generally supposed to work when things are more normal, which I prepared with an assist from Jody L. Dietel. She’s a senior vice president at HealthEquity, which owns an administrator called WageWorks, and is a 30-year veteran on the tax-advantaged workplace benefits plan scene.

It starts with $5,000 for all care, right?

Potentially. Employers are the ones that offer dependent care accounts, so you have to have an employer in the first place and it needs to choose to offer one. Mercer, which does employee benefits consulting, said 84 percent of employers with over 500 workers offered the accounts the last time it examined the matter, in 2017.

Your employer decides how much money you can set aside, up to a legal limit of $5,000. That generally comes out in equal chunks, check by check, throughout the year. After the care happens and you pay for it, you submit a receipt for reimbursement (unless your account administrator is able to pay the care provider directly).

Many kinds of care count, as long as it’s the sort of care that allows you to work. Day care, nursery school, after-school programs and summer camp all qualify, if it’s for a child 12 or under. If you pay for in-home child-care and you and the provider report the income, that works, too. Also allowable: care for disabled spouses and older family members. (Check Internal Revenue Service Publication 503 under “Who is a Qualifying Person?” for all the conditions and details.)

Camp was canceled. Can I just take my money back?

No. There’s no legal way to just bust it out and pay taxes on it.

OK, but my job was just canceled. Can I have my money back under those circumstances?

Unfortunately, no.

Still employed here. Can I at least stop contributing?

Maybe.

Normally, you’re not supposed to be able to change the set-aside from your paycheck during the year. But the rules allow for exceptions when you’ve experienced a qualified change in status. According to Ms. Dietel, plan administrators tend to be flexible in their reading of the regulations here.

Indeed, the federal government, which itself has many employees using dependent care accounts, has already signaled that participants can halt their plan contributions. They can do this as long as they or their spouses have had some kind of change in job status (which could include a change in the location where they work) or there has been some kind of change in the cost or coverage for dependent care.

Under those terms, most people would qualify. Ask your human resources representative for help if you want to make a change.

OK, but I still have $1,700 in the account now that I’ve stopped contributing. What’s the hack here? Please tell me there’s a hack.

First, check for reimbursable expenses you might have missed. Some people keep things simple by using their money for one big expense — say, summer camp. That way, there is only one reimbursement or web form to fill out.

So perhaps you’ve forgotten about after-school or elder care that you paid for in February. Was any of it eligible? If so, get some receipts and submit them.

Also, your need for care may not have gone away, even if the entity that was going to provide it is closed down. If you’re working from home and your child’s school is closed, the need might have gone up.

Unfortunately, you can’t use money from the account to pay your 14-year-old to watc
h your 4-year-old while you work. (Yes, I asked, and Ms. Dietel laughed at me, or maybe it was with me.) But you could use it to pay your 14-year-old’s best friend. You can even use it to pay a relative who is not a dependent of yours.

As always, this needs to be totally above board — the caregiver would need to provide an invoice or sign a reimbursement form with a Social Security number on it and all of that.

What if I have no expenses to submit and won’t for the rest of 2020?

You’ll lose any money you’ve set aside, though some companies allow a grace period for a few months into the next year. So if you anticipate some new expenses in early 2021, that might work out for you.

None of this seems right. Will Congress fix it?

Maybe. The National Taxpayers Union is lobbying for changes. A spokesman for the Senate Finance Committee said it was aware of the issue; lawmakers are working with the Treasury Department to see what it might do to provide relief and whether any legislative fix is required.

Last month, Representative Brad Wenstrup, Republican of Ohio, and a bipartisan group of colleagues including Representative Tom Suozzi, Democrat of New York, wrote a letter to the I.R.S. and Treasury asking that people be able to carry over unused dependent care (and health care flexible spending account) money into 2021.

But I don’t know that I would count on it happening. At the very least, consider halting your contributions now if you think there is no chance you will use any additional money for care — or could make better use of the money now.

If and when you do get the money back, if you can afford to, consider treating it the way that some people have for years — as a surprise bonus that lets you help people who aren’t lucky enough to have any employer at all, let alone one laden with tax-saving benefits plans.