Use It Or Lose It: Parents Set Wages Aside For Child Care. Now It's At Risk

For many families, 2020 ended up being a year with fewer child-care expenses. Now parents with unspent funds in their dependent-care flexible spending accounts are trying to figure out what to do.

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It's like adding insult to injury. Working parents who set aside part of their pay, pre-tax, to cover child care expenses, well, a number of them now stand to lose some of it unless the government acts. NPR's Andrea Hsu explains.

ANDREA HSU, BYLINE: Norah Perez's children had been going to day care since they were 4 months old, until the coronavirus shut everything down this spring.

NORAH PEREZ: We had expected it to be for a few weeks. I think that a lot of parents around the country were in the same position, just waiting and seeing what was going to happen with the pandemic.

HSU: At first, Perez didn't worry too much. She figured the kids wouldn't be home for that long. Of course, things only got worse. And in late May, the kids' day care announced it was closing permanently. By that point, Perez had already contributed a lot of money to what's called a dependent-care flexible spending account.

PEREZ: I have over $2,200 stuck in the account.

HSU: And that money is use it or lose it, meaning she has to spend it this year or it's gone. This is a tax benefit offered by many employers. You can set aside up to $5,000 a year before taxes for child care expenses like day care, aftercare or summer camps. This year, because of the pandemic, Perez had the opportunity to stop the contributions. But she waited a few months because she kept thinking the kids would be going back to day care. Now, she's pretty sure they won't.

PEREZ: Right now, I'm just looking at different options and trying to figure out what I can do.

HSU: On Capitol Hill, Representative Cindy Axne, a Democrat from Iowa, has been hearing the same thing from constituents.

CINDY AXNE: Families are struggling to begin with. We don't need to have an added burden of losing money during this timeframe.

HSU: In May, she introduced a measure that would allow the dependent care funds to be carried over into next year. She's gotten the measure into a couple of pandemic relief bills, but those have been stuck in the Senate. And now, time is running out. Even in a year when there are so many competing priorities, so many people in economic straits, Axne thinks this is a no-brainer.

AXNE: This should get done. To me, this is a common-sense piece of legislation that allows for folks to use the hard-earned money that they earned.

HSU: Now there is another option. The IRS could extend the grace period for these funds until December 31 of next year. In fact, they did this for some of last year's funds. But the IRS told NPR, for now, the normal rules apply. So Cindy Axne is still pushing on the legislative front. And she's also pushing for another change to dependent-care accounts. She wants to double the annual limit on how much you can set aside tax-free. It's been $5,000 since the 1980s.

AXNE: There is no place in this country where someone could make sure that their child is in a good child care setting for $5,000.

HSU: Multiple attempts to raise the cap over the years have failed. But Axne says we're at a moment when we're going to see child care become a major issue.

AXNE: We have to start helping our parents out more.

HSU: After all, she says, it's working parents who keep the economy running.

Andrea Hsu, NPR News. Transcript provided by NPR, Copyright NPR.