IRS Issues Information Letter Regarding DCAP COVID-19 Relief

On December 31, 2020, the IRS released Letter Number 2020-0027 that addressed a question concerning whether a person with unused funds in a DCAP can have those funds reimbursed to him because his child did not attend summer camp due to COVID-19 and he did not anticipate any further childcare expenditures for the rest of the year.

The IRS stated that, although 2020 COVID-19 relief did give plans flexibility in allowing mid-year changes in DCAP elections, it did not override the requirement that DCAP funds cannot be returned except to reimburse the participant for employment-related childcare expenses.

Information letters are not legal advice and cannot be relied upon for guidance. Taxpayers needing binding legal advice from the IRS must request a private letter ruling. While the letter does not provide any new guidance, this letter does provide general information that may be helpful to employers with questions on this topic.

Letter Number 2020-0027