Please note that future or projected expenses cannot be reimbursed until services have been rendered.
Most work-related expenses incurred during the plan year for the care of a qualified person (a qualified person must be either a Qualifying Child or a Qualifying Relative as defined by the IRS) will qualify for non-taxable reimbursement through a Dependent Care Reimbursement Account. Any expense that would qualify under Internal Revenue Code section 21 for the Child Care Credit will qualify for reimbursement. Please refer to Internal Revenue Service Publication 503 for more information. Dependent care expenses are incurred when the services are provided and not when you are billed for or pay for those services.
- Your child/dependent care expense must be incurred to allow you and your spouse, if married, to work or look for work. See exception for student-spouse or spouse not able to care for self.
- The provider of the child/dependent care must be someone you or your spouse could not claim as a dependent and if the provider was your child then he/she must have been 19 or older by the end of the year.
- You must supply the provider's:
- Address, and
- Taxpayer Identification Number or Social Security Number.
Only work-related expenses qualify for Dependent Care reimbursement. Your expenses must have been for the well-being and protection of a qualifying person. Expenses are considered work-related only if they allowed you and your spouse, if married, to work or look for work and they are for a qualifying person's care. For example, the cost of a babysitter while you and your spouse go out to eat is normally not a work-related expense.
Generally, if you are married, both you, and your spouse must work. In certain cases, however, your spouse does not have to work. See Work Requirements.
Your work can be for others, full time or part time, or in your own business or partnership. Work may include actively looking for work. Unpaid volunteer or volunteer work for a nominal salary does not qualify. Both you and your spouse, if married, must work unless your spouse is a full-time student or disabled.
Your spouse is considered to have worked if for any month he or she was:
- A full time student, or
- Physically or mentally unable to care for self.
Note: A full time student is one who is enrolled at a school during at least some part of each of five calendar months of the calendar year, not necessarily consecutive, for the number of hours considered by that institution to be a full time course of study. A student who attends school only at night is not a full time student. However, a full time student can attend some night classes.
KEEPING UP A HOME:
Payments to relatives. Consider work-related payments you made to relatives who are not your dependents, even if they live in your home. However, do not consider any payments you made to:
- A dependent for whom you or your spouse, if married, can claim as an exemption, or
- Your child who was under the age of 19 at the end of the year.
EXPENSES FOR HOUSEHOLD SERVICES:
Expenses you pay for household services done in and around your home that were necessary to run your home are work-related expenses if they were primarily for the well-being and protection of a qualifying person. The services of a housekeeper, maid, or cook are only considered necessary to run your home if performed primarily for the benefit of the qualifying person. Primarily for the well-being and protection as used in this paragraph means the provider must spend most of his or her time caring for the qualifying person. However, do not include payment for services of a chauffeur or gardener.
Household services do not include expenses for a qualifying person's:
- Education, or
If part of an expense is work-related and part for other purposes, you must allocate the expense. Consider only the part that is work-related. However, you do not have to allocate the expense if the part for the other purpose is small.
Example: You pay a housekeeper to care for your 9-year-old and 15-year-old children so you can work. The housekeeper spends most of the time doing regular household work, cleaning and cooking, and spends 30 minutes driving you to and from work. The entire expense of the housekeeper is a work-related expense. You do not have to deduct any amount for being driven to and from work, because the time involved is minimal. You do not have to deduct any amount for the care of the 15-year-old (not a qualifying person) because the household expense is partly for the care of the 9-year-old, who is a qualifying person.
EXPENSES FOR THE CARE OF A QUALIFYING PERSON:
The main reason to have expenses for the care of a qualifying person must be for the person's well-being and protection. These expenses do not include amounts you paid for clothing, entertainment, food or schooling. However, if these amounts are incident to and cannot be separated from the cost of caring for a qualified person, you can consider the total cost. For example, if a nursery school or day-care center provides lunch and educational services as a part of its preschool childcare service, you can consider the entire cost, unless the lunch cost is separately billed. Do not consider the cost of schooling in kindergarten or higher. If the expense is partly for education and partly for care, you must divide the total cost between the cost of caring for the child and cost of schooling.
Example: You place your 5-year-old in a private kindergarten that also provides before or after school care so you can work full-time. Only the part of the expense that is for before or after school care of your child is included in your work related expenses. You cannot use any part of the amount you pay the school for your child's education as a work-related expense.
You can include the cost of care provided outside your home if the care was for your dependent under age 13 or for any other qualifying person who regularly spends at least eight hours each day in your household. Care that is provided outside your home by a dependent/day care center can be included provided the center complies with all the applicable state and local regulations. The cost of getting a qualifying person to and from your home and the care location is not considered a work-related expense. This includes the cost of buses, subways, taxis, or private car.
Meals and lodging provided for housekeeper. If your housekeeper ate in your home, add to your work-related expenses the part of your total food cost that was for the housekeeper. If you have extra expenses for your housekeeper's lodging, add these expenses to your work-related expenses. For example, if you moved to an apartment with an extra bedroom for the housekeeper, add the extra rent and utility expenses for this bedroom to your work-related expenses.
Taxes paid on wages. If you pay wages for household help, you may have to pay the employer's portion and withhold the employee's portion of the Social Security tax (FICA). You also may have to pay federal unemployment tax (FUTA) and similar state taxes.
FICA/Social Security taxes. FICA/Social Security taxes paid on behalf of the day care provider are eligible dependent care expenses.
Payments to a housekeeper while you are out sick. Do not include as work-related expenses amounts you pay to a housekeeper for household and care services while you are off from work. If you are only off work for a short time, for example one day, you do not need to prorate the day care.
Your work-related expenses must be for the care of one or more members of your home who are qualifying persons. A qualifying person is:
- Your dependent under the age of 13 for whom you can claim an exemption
- Your dependent who was unable to care for himself or herself who spend at least 8 hours each day in your home and for whom you can claim an exemption (or could claim an exemption except the person had a gross income exceeding the exemption amount)
- Your spouse who is physically or mentally unable to care for him/herself who spend at least 8 hours each day in your home.
If you are divorced you must have physical custody of your child for over half the year. If custody is exactly equal then neither parent can use the childcare expenses. The parent who has more than 50% custody is eligible for the dependent care regardless of who claims the tax exemption.
Physical or mental incapacity must be disabling. Persons who are not able to dress, clean or feed themselves because of physical or mental problems are considered unable to care for themselves. Persons with mental defects who require constant attention to prevent them from injuring themselves or others are considered unable to care for themselves.
LIMITATION AND REIMBURSEMENTS:
The law imposes limits on the amount of non-taxable dependent care reimbursement an individual can receive. An individual cannot be reimbursed for any amount over the lowest limit that applies to his/her situation. The limits are as follows:
- If the individual is married, both the individual and his/her spouse must earn income, unless the spouse is disabled or a full time student. The amount of expenses that qualify for reimbursement is limited to the income earned by the spouse with the lower taxable earned income. If the spouse is a full time student or disabled, the law assumes that he/she has a monthly income of at least $250 if the individual has one qualified person, or at least $500 if the individual has two or more qualified persons.
- There is a $5000 limit on the total amount of tax-free dependent care assistance that an individual can receive in any year ($2500 if the individual and his/her spouse file separate tax returns). If the individual's spouse's employer also has a dependent care assistance plan, the $5000 limit applies to the total amount of tax-free dependent care assistance that the individual and his/her spouse, as a couple, can receive in any year from all employer- sponsored plans. The $5000 limit is not affected by the number of qualified persons an individual has.
ELIGIBLE AND INELIGIBLE DEPENDENT DAY CARE EXPENSE LISTING
Day camps, nursery schools, and after-school programs and daycare centers are eligible.
All must be expenses that allow you and your spouse, if married, to be gainfully employed. Gainful employment includes being a full time student (See General Information). Expenses for care of dependents below kindergarten are eligible even if education is provided.
Care provided at your home, at a provider's home, or at a dependent care center (providing the center complies with all applicable state and local regulations) is eligible. Care provided outside your home, either in a day care center or at the provider's home is only eligible if the care is provided to a dependent under the age of 13 for whom you are allowed to claim an exemption for federal income tax purposes or is provided to any other qualifying person who regularly spends at least eight hours each day in your household.
Lodging provided for an in-home babysitter can be paid when submitted with dependent care charges.
Utilities for provider's (in-home provider) lodging when submitted with dependent care charges.
Meals for provider (in-home provider) when submitted with dependent care charges. Taxes paid on wages for household help.
FICA/Social Security taxes as long as the day care provider is the employee the taxes are being paid on.
Dancing lessons, field trips, swimming lessons, diapers, transportation, meals, clothing, and educational services. Note: If these expenses are incidental to and part of the total bill and cannot be separated, they are eligible.
Overnight camp (including the day-time portion).
Babysitting fees paid for a healthy child while parent is recuperating from an illness (regardless of doctor's advice.)
Payment for chauffeur or gardener.
Tuition for schooling in kindergarten or higher.
Placement fees for finding a dependent care provider (e.g., Au Pair).
Payment to a housekeeper while you are out sick.
DEPENDENT DAY CARE GENERAL INFORMATION:
Cancelled checks do not represent sufficient documentation of a day care expense.
- Provider receipts submitted with request form must include the following:
- Name and address of provider
- Actual dates on which care was provided (not billing/payment date)
- Amounts of dependent day care charge
- Tax Identification Number (Social Security Number if no TIN, or indicate tax-exempt for tax-exempt provider)
Immigrants who have filed and are waiting for their green card are eligible day care providers only if they have a Social Security Number.
A qualifying individual is a person under the age of 13 that can be claimed as a tax exemption (except in the case of children of divorced parents) or any other dependent who is physically or mentally unable to care for him/herself.
Unpaid volunteer work or volunteer work for a nominal salary does not qualify as gainful employment.
A Full time student is one who is enrolled at a school during at least some part of each of five calendar months of the calendar year, not necessarily consecutive, for the number of hours considered to be a full time course of study. A student who attends school only at night is not a full time student.
Future or projected expenses cannot be reimbursed until services have been rendered.
A dependent for whom you or your spouse, if married, can claim as a tax exemption or your or your spouse's child who is under the age of 19 as of the end of the year is not eligible as a dependent care provider even though he/she might not be your dependent.