Employees who need custodial care for an eligible dependent so that the employee and spouse can work (or go to school full-time) qualify for a dependent care reimbursement account. If married, the spouse must work or be a full-time student. The annual amount submitted for reimbursement cannot exceed the amount earned by the lower paid spouse. For a full-time student, an income of $200 per month for one dependent, $400 for two or more, is assumed.
Expenses must be for the care of a dependent that is 12 years old or younger and the employee must be entitled to a deduction for this dependent under IRS Code Section 151(e) or expenses for care must be for a spouse or dependent who is physically or mentally incapable of caring for him or herself. Expenses for services needed to run the home by a housekeeper or maid are covered if they are partly for the well being and protection of the dependent. Expenses for food, clothing, education or entertainment for the dependent are not covered. Kindergarten is not an eligible expense.
Payment for services cannot be made to a person who is claimed as a dependent or to a child if the child is under age 19. The provider can be a relative who is not a dependent, even if the provider lives in the employee’s home. If the services are provided for a disabled spouse or dependent outside the employee’s home, the disabled spouse or dependent must spend at least eight hours each day in the employee’s home. A provider who cares for dependents who are under age 13 and who care for more than six individuals must comply with all state and local laws at the provider's location.
Eligible types of daycare providers are:
- Licensed daycare centers.
- Private preschool programs.
- Home-based licensed day cares.
- Public or private before school and after school programs.
- Private sitter in your home or theirs.
- Public or private summer day camps.
- Nursery schools.
- Kindergarten is not an eligible expense.
In order to claim expenses as a tax credit, the social security number or federal tax number of the provider must be submitted.
NOTE: Church-sponsored day care centers are not required to provide a tax number. Dependent care expenses must satisfy eligible criteria for a dependent care reimbursement account as outlined in Section 129 of the IRS code.
There is a $5,000 maximum contribution limit per calendar year. Working couples can contribute a combined total of $5,000 to this account. Deductions cannot exceed the earned gross income of the lower paid spouse unless the spouse is a full-time student or is disabled. Reimbursements cannot exceed the amount that is in the account when the request is made. Participants have 90 days after the end of the plan year to submit all claims. For dependent daycare, the service deadline remains December 31 of the plan year; expenses must be incurred within the current calendar year. Kindergarten is not an eligible expense.