From the Hotline: Dependent Care FSA Grace Period

Question: What is the grace period after the plan year ends for an employee with a Dependent Care FSA to use the funds?

Answer: The IRS allows for a grace period of up to two months and 15 days after the plan year ends. However, an employer may adopt a different grace period within that timeframe, so employers should review their plan documents to verify what grace period, if any, is allowed under their specific plan.

Additionally, plans may adopt a provision which allows them to reimburse a terminated employee’s qualified dependent care expenses incurred after termination (assuming they terminate with a positive cash balance in the account) if all of the § 129 requirements are otherwise satisfied. Note the cafeteria plan must have adopted this provision in order for it to apply.

Sources:

Grace Period: www.irs.gov/pub/irs-drop/n-05-42.pdf

Section 129: www.law.cornell.edu/uscode/text/26/129