An IRS information letter responding to an inquiry regarding the return of unused amounts in a participant’s dependent care assistance program (DCAP) (also referred to as a dependent care flexible spending arrangement) stated that even though relief is offered in Notice 2020-29 to allow participants to revoke their FSA election, this relief does not modify the rule that an employee cannot receive amounts from a dependent care FSA other than as reimbursements for dependent care expenses.
The letter goes on to state:
“Notice 2020-29 allows (but does not require) an employer to amend a Section 125 cafeteria plan to give employees increased flexibility to make mid-year election change to their dependent care FSAs during 2020. Specifically, employers may amend a Section 125 cafeteria plan to allow employees to revoke an election, make a new election, or decrease or increase an existing election for a dependent care FSA prospectively. The Notice also allows an employer to amend a Section 125 cafeteria plan to extend the period for incurring claims that may be reimbursed by a dependent care FSA to the end of 2020.”
Notice 2020-29 is available on the IRS.gov website at