The American Rescue Plan (ARP) of 2021 includes legislation that increases the dependent care Flexible Spending Account (FSA) limit for 2021 from $5,000 to $10,500 (from $2,500 to $5,250 for married filing single). An employer can amend its cafeteria plan retroactively to adopt this increased limit, as long as it amends the plan by the end of the plan year and operates consistently with the amendment.
In prior IRS guidance, mid-year election changes are permitted for both healthcare and dependent care FSAs for plan years ending in 2021 without a change in status. The IRS also provided relief allowing employers to retroactively amend their plans. Plan amendments must be made in order to take advantage of the above changes.