National League of Cities Requests FSA Rollover Guidance

November 11, 2020

Charles Rettig
Commissioner
Internal Revenue Service
1111 Constitution Avenue N.W.
Washington, D.C. 20224

David Kautter
Assistant Secretary for Tax Policy
Department of the Treasury
1500 Pennsylvania Avenue N.W.
Washington, D.C. 20229

Dear Commissioner Rettig and Assistant Secretary Kautter,

The National League of Cities (NLC) is the nation's foremost non-partisan resource and advocate for municipal governments and their leaders, representing all of America's 19,000 cities, towns and villages. We are concerned and writing to you today about the dependent care flexible savings account (FSA) that taxpayers use to help manage costs of raising children.

As you know, monies set aside in a dependent care FSA can be used for before and after school care; babysitting and nanny expenses; daycare, nursery school, and pre-school; and finally, summer day camps. The limit that a taxpayer can set aside is $5,000 per year if married and filing jointly and $2,500 for a taxpayer who is married and files a separate tax return.

The money put into these accounts represents potentially thousands of dollars for taxpayers, either if they are single or married filing jointly.

Calendar year 2020 included the COVID-19 pandemic, and as a result, many taxpayers were not able to use the money they carefully planned for and set aside in their dependent care FSA. Summer day camps were closed, many preschools and daycares closed. As a result of these closures due to COVID-19, taxpayers will end up with money leftover at the end of the calendar year 2020 in their dependent care FSAs. The issue for taxpayers is that the dependent care FSA requires them to use it or lose it. Through no fault of their own, a portion of taxpayers will lose money as a result of the COVID-19-related shutdowns where FSA dollars would normally be spent.

The National League of Cities strongly urges the Internal Revenue Service and Treasury Department to consider issuing guidance that would allow taxpayers with monies remaining at the end of calendar year 2020 in their dependent care FSA to roll over a portion or all of the remaining money into calendar year 2021.

Taxpayers did not make poor planning decisions about setting aside and spending, rather a global pandemic upended the plans of taxpayers creating this situation. Our request is limited in scope and would only pertain to this exceptional situation of calendar year 2020.

Thank you for considering our request, and we look forward to your response. If you have any questions regarding our concerns, I encourage you to reach out to Irma Esparza Diggs, Senior Executive and Director, Federal Advocacy, at diggs@nlc.org.

Sincerely,

Clarence Anthony
CEO and Executive Director
National League of Cities
Washington, DC