COVID-19: Can dependent care assistance program Elections be Changed Midyear?

Diane Glover

Aug 24, 2020

Due to the coronavirus (COVID-19) pandemic, employers are now faced with many challenges with their workforces, including responding to changes in employee benefits programs. In response, they have many questions. Here’s one question from an employer:

Q. One of our employees has approached us with a dilemma. She would like to revoke her dependent care assistance program (DCAP) election under our calendar-year cafeteria plan. The reason is that her dependent care provider has closed due to the coronavirus (COVID-19) pandemic. She tells us that a neighbor has offered to take care of her children at no cost. Can we allow a midyear election change under these circumstances?

A Yes, if your plan document has been drafted as expansively as IRS rules allow for midyear election changes due to changes in cost or coverage. The rules apply broadly to dependent care assistance programs (DCAPs), permitting midyear election changes in a variety of circumstances that involve changes in care providers or in the cost of care.

IRS officials have informally commented that a DCAP election change is permitted when a child is switched from a paid provider to free care (or no care, in the case of a “latchkey” child). Other circumstances in which IRS rules would allow a DCAP election change include a modification in the hours for which care is provided or in the fee charged by a provider. However, an election change isn’t allowed if a modified cost is imposed by a care provider who is the employee’s relative, as defined in IRS rules.

Note: While the cost or coverage election change rules apply broadly to DCAPs, they don’t apply to health flexible spending arrangements (FSAs). This is one of several areas in which the rules differ for health FSAs and DCAPs.

Contact Kirsch CPA Group with any questions.

More Resources

Guide: Next Level Accounting Services for Your Growing Business

Guide: Build a Better Business by the Numbers

Case Study: Strategic Accounting Support from Acquisition to Sale

About The Author

As the Manager of Practice Growth, Diane focuses on the market awareness and growth of Kirsch CPA Group…

dglover@kirschcpa.com

Sign Up for Email Updates

Accounting & Financial News

Audits Are Essential to Your Organization’s Health

Audits have become more important due to increased public and government scrutiny of not-for-profit organizations, their management…

Tax Update: What the “One Big Beautiful Bill” Means for You

On July 5, President Trump signed the One Big Beautiful Bill Act (OBBB) into law—a sweeping tax…

Ohio Income Tax Changes: What You Need to Know

On June 30, 2025, Ohio Governor Mike DeWine signed into law the state’s biennial operating budget, which includes modifications to…

Frequently Asked Questions

How can I manage cash flow better?

Good cash flow management and forecasting are essential for maintaining the financial health of your business. Having a rolling 12-month forecast of revenues and expenses helps you proactively avoid shortfalls and capitalize on opportunities. Learn more >

How can my business benefit from outsourced CFO services?

Outsourced CFO services, also known as fractional or virtual CFO services, let small and mid-size businesses leverage the deep financial expertise and strategic insights needed to accelerate growth and profitability for a fraction of the cost of hiring a full-time CFO. Key offerings include profitability analysis, cash flow forecasting, KPI benchmarking, and budgeting. Learn more >

How can I ensure that I don’t pay more taxes than necessary?

Effective tax planning involves leveraging all available tax credits, avoiding unpleasant surprises, keeping up with changes in the law, and ensuring you pay only your fair share. Learn more >

How can a CPA firm increase the profitability and value of my business?

When you partner with an accounting firm that offers advisory services, you will have the clear financial visibility needed to confidently make big decisions and drive profitable growth for your business. Learn more >

What should I look for in an outsourced accounting firm?

Growing a business requires more than tax preparation and basic accounting services. You need a holistic and forward-looking approach to your financial health. For best results, look for a partner who employs a proven process and a diverse range of services tailored to optimize cash flow, increase profitability, and maximize the value of your business. Learn more >

Recent Posts