Dependent Care Benefits

Brought to you by the insurance professionals at LHD Benefit Advisors Dependent Care Benefits Expenses may only be reimbursed after the dependent care services have been performed. For example, if a dependent Section 129 of the Internal Revenue Code (IRC) provides for care provider requires payment at the beginning of the week, dependent care assistance programs (DCAPs). A DCAP is an the employee may not seek reimbursement until the end of employer-sponsored benefit plan that allows employees to the week. pay for certain dependent care expenses on a tax-free basis, What household services are eligible for up to a specified limit. DCAPs are also commonly referred to reimbursement? as dependent care flexible spending accounts, or dependent care FSAs. Common eligible DCAP expenses include Reimbursable household services are ordinary and usual babysitting and day care costs incurred while the employee services necessary to the maintenance of the household that and his or her spouse are working. are performed in and about the taxpayer’s home and attributable to the care of the qualifying individual. Services This article provides a brief overview of DCAPs. provided by chauffeurs, bartenders or gardeners are not What is a DCAP? eligible for reimbursement from a DCAP. A DCAP is an employer-sponsored program that helps What expenses for the care of a qualifying individual employees with the cost of dependent care expenses. It are eligible for reimbursement? establishes an account from which an employee may seek Expenses for the care of a qualifying individual are reimbursement for eligible dependent care expenses. In most reimbursable where the primary function is to ensure the cases, a DCAP account is funded by employees with pre-tax individual’s well-being and protection. Expenses for food, dollars through payroll deductions. lodging, clothing or education are not eligible, unless these A DCAP may be offered within a cafeteria plan or as a goods and services are incidental to and inseparably part of separate plan. When a DCAP is offered within a cafeteria the care. plan, it is subject to the same rules that govern cafeteria IRS regulations include an example where a preschool child plans. care service includes meals for the students, and the cost of What dependent care expenses are eligible for meals is not separated from the cost of child care. In this reimbursement? example, the cost of meals is considered incidental to and A dependent care expense is eligible for reimbursement from inseparably part of the care. Therefore, the employee may a DCAP if it is an employment-related expense. An seek reimbursement for the full cost of the preschool employment-related expense must: program without allocating any portion of the expense to meals. • Be primarily for the care of a qualifying individual or for household services attributable in part to the qualifying individual’s care; and • Enable the taxpayer to be gainfully employed. This Benefits Insights is not intended to be exhaustive nor should any discussion or opinions be construed as professional advice. © 2019-2020, 2022 Zywave, Inc. All rights reserved.