If a portion of an expense is for care of the qualifying Who is a qualifying individual? individual and a separate portion is for another purpose, IRS A qualifying individual includes: regulations clarify that an allocation can be made to allow the • The taxpayer’s dependent who is under the age of employee to be reimbursed for the portion of that expense 13; or that is attributable to caring for the qualifying individual. However, an allocation is not necessary if the portion of the • The taxpayer’s dependent or spouse who is expense for the other purpose is minimal or insignificant. physically or mentally incapable of self-care and who IRS regulations provide the following guidance regarding has the same principal place of abode as the specific expenses that are eligible for reimbursement under a taxpayer for more than half of the taxable year. DCAP and those that are not eligible: Individuals are physically or mentally incapable of self-care if, Eligible Expenses as a result of a physical or mental disability, they are incapable of caring for their own hygiene or nutritional needs, • Expenses for a nursery school, preschool or similar or require full-time attention of another person for their own program below the level of kindergarten are eligible. safety or the safety of others. The individual’s inability to engage in any substantial gainful activity or perform the • Expenses for before- or after-school care of a child in normal household chores or care for minor children does not kindergarten or a higher grade are eligible. in itself make the individual physically or mentally incapable • Day camp expenses, including specialty camps such of self-care. as sports or computer, are eligible. Whether someone is a qualifying individual must be • Expenses for transportation provided by the calculated on a daily basis. For example, upon a dependent’s dependent care provider to or from the place of care 13th birthday, the employee may no longer seek are eligible. The cost of transportation provided by reimbursement for dependent care expenses incurred after anyone else is not eligible. his or her dependent’s birthday. Employees should take into • Employment taxes paid to a caregiver are eligible. consideration the daily calculation requirement when making their annual elections. • Expenses related to providing room and board to a What constitutes gainful employment? caregiver may be eligible. Gainful employment may consist of service within or outside • Indirect expenses such as application fees, agency the taxpayer’s home, including self-employment, and time fees or deposits paid to obtain dependent care spent actively seeking gainful employment. Time spent services are eligible. actively seeking gainful employment includes time spent as a Ineligible Expenses full-time student in an educational organization. Where the purpose of the expense is to enable the taxpayer and the • Expenses for kindergarten or higher grade levels are taxpayer’s spouse to be gainfully employed depends upon the not eligible. facts and circumstances of the particular case. Whether an • Expenses for overnight camps are not eligible. expense was related to gainful employment is calculated on a daily basis. • Payments to either the taxpayer’s spouse or to a If an employee is married, the employee’s spouse must be parent of the taxpayer’s child who is not the employed (including self-employed), be actively seeking taxpayer’s spouse are not eligible. gainful employment or be a full-time student in an educational organization during the time that the employee seeks reimbursement of dependent care expenses.