LOS ANGELES — Like many parents working from home these days, Patrick MacFarlane finds himself spending a lot more time with his family, especially his daughter Leah. “She just turned three so we’ve got to spend so much time together and seeing her grow over the course of [her second year] has been amazing,” MacFarlane said.
Leah was in a child care program at the beginning of the year, but when the pandemic hit, MacFarlane and his wife pulled her out, preferring to keep her safe at home.
They took turns watching her and his mother-in-law helped out a couple days a week.
“It’s challenging because when those are the only days that you are sort of uninterrupted with work, you pack those days full of meetings,” MacFarlane said. “Then the next day comes and if you don’t have that help, then you are – I think like most parents – just sort of running at 50% or 60% capacity, trying to get by.”
But keeping Leah at home came at a cost because MacFarlane already set aside funds for child care that he couldn’t use or get back. He was contributing part of his paycheck to a dependent care FSA, or flexible spending account.
“The cost of child care is more than the cost of in-state tuition at a UC," MacFarlane said. "The dependent care FSA allows you to set aside $5,000 pre-tax because that would have been a small fraction of what we would have paid for child care, so it was kind of a no-brainer.”
MacFarlane accumulated over $3,000 in the account, which IRS guidelines show are “use it or lose it” by the end of 2020. It left him scrambling to figure out what qualified child care expenses he could claim now that his daughter was home. Paying a family member for child care help wasn’t reimbursable under MacFarlane's FSA plan.
Financial planner Brian Levy says dependent care FSA accounts are run by employers and the first thing workers should do is stop contributing, which typically isn’t an option.
“Normally, unless there is what they call 'a qualifying event,' you can’t make changes,” Levy said. “Because of COVID, the government has come out and said it allows employees right now to drop their coverage, increase or decrease their contributions.”
Levy says employers administer the FSA accounts and will receive unspent funds by year’s end, but not all. “Some have a grace period that says you have 2.5 months after the year is over to spend it, so they give you a little bit of leeway," he said. "Others say, 'we’ll allow you to carry forward,' let’s call it $500 out of the $2000 or $1000 that are in there, so you want to check your plan. You want to check with your employer. There may be an ability to use it up early next year.”
The IRS has not extended the year-end deadline and legislation that would allow workers to carry their balances over to next year has stalled in Congress. However, parents can try to find reimbursable child care expenses, like MacFarlane did. He ultimately hired a nanny to watch Leah for a part of the week and was able to use funds from his FSA to cover that cost.
But for 2021, MacFarlane decided not to contribute to his FSA, given the uncertainty of next year and plans to keep Leah at home for now.
“I’m hopeful that we’re making the right decisions. I don’t really know,” he said. “I’m worried that she is going to miss out on making friends but hopefully, we’ll have time to do that moving forward.