American Rescue Plan Act of 2021
Learn more about the provisions for an increase of the dependent care flexible spending account (DCFSA) contribution limit.
On March 11, 2021, President Biden signed into law the latest COVID-19 relief bill, the American Rescue Plan Act (ARPA) of 2021. This wide-ranging bill includes provisions for an increase of the dependent care flexible spending account (DCFSA) contribution limit.
For 2021 only, the DCFSA contribution limit for qualifying dependent care expenses is increased from $5,000 to $10,500 for individuals or married couples filing jointly and from $2,500 to $5,250 for married individuals filing separately.
- The increase in the DCFSA contribution limit is optional. Employers may amend their plans if they wish to implement this change.
- Plans may be amended retroactively, so long as the amendment is adopted by the last day of the plan year in which the amendment is effective and the plan is operated in compliance with the amendment’s terms beginning on its effective date.
- Employers will want to consider the impact on non-discrimination requirements that this change may have. Highly compensated employees may elect to increase elections at a higher rate, which may cause discrimination issues.
- Employers may choose to elect a maximum contribution that is less than the new contribution limit.
Please contact your Relationship Manager or Optum Bank client services if you have any questions about adopting the temporary provisions included in ARPA 2021. We advise you to speak with your tax or benefits counsel regarding interpretation of the legislation.