Dependent Day Care Flexible Spending Account
Dependent Day Care Flexible Spending Account is similar to the Health Care Flexible Spending Account, except that an employee is able to pay for dependent day care costs on a pre-tax basis. If an employee is reimbursed for these costs under a Cafeteria Plan, they may not use these expenditures in computing the Child Credit on Form 1040.
Reimbursement for dependent care expenses may not exceed the following limits:
- $5,000 (if an employee is a head of household or married and files a joint return) or $2,500 (if an employee is married and files a separate return).
- Your tax compensation (after all compensation reduction arrangements).
- If an employee is married, the spouse’s actual or deemed earned income.
For purposes of (c) above, an employee’s spouse will be deemed to have earned an income of $200 ($400 if the employee has two or more dependents) for each month in which the employee’s spouse is (1) physically or mentally incapable of caring for himself or herself, or (2) a full-time student at an educational institution.
Qualifying Dependent Day Care Expenses
Under our plan, a participant will be reimbursed only for dependent care expenses that meet ALL of the following conditions:
The expenses are incurred for services rendered after the date of an employee’s election and during the plan year to which it applies.
Each individual for whom an employee incurs an expense is:
- A dependent under age 13 whom the employee is entitled to claim as a dependent (or a child or other dependent under age 13 whom an employee is supporting but is not entitled to claim as a dependent only because of a written declaration or decree of divorce) on the employee’s federal income tax return, OR
- A spouse or other tax dependent (or child that an employee is supporting but is not entitled to claim as a dependent only because of a written declaration or decree of divorce or who is physically or mentally incapable of caring for himself or herself).
- The expenses are incurred for the care of an employee’s dependent described above, or for related household services, and are incurred to enable the employee to be gainfully employed.
- If the expenses are incurred for services outside the employee’s household, they are incurred for the care of a dependent who is described in 2(i) above. If the expenses are incurred for services inside the employee’s household, they are incurred for the care of a dependent who is described in 2(i) and they are incurred for at least 8 hours per day.
- The expenses are incurred for services provided by a dependent care center (i.e. a facility that provides care for more than six individuals not residing at the facility). The center must comply with all applicable state and local laws and regulations.
- The expenses must not be paid or payable to an employee’s child who is under age 19 at the end of the year in which the expenses are incurred.
- The expenses may not be paid or payable to an individual for whom the employee or their spouse is entitled to a personal tax exemption as a dependent.
Call us for help in setting this benefit up for employees of your company so they can save and so will the company. Rich Miller