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A dependent care account is similar to a medical account except it's for paying daycare expenses. This account does not cover medical expenses for your dependents. Refer to the medical reimbursement account for these types of expenses. The money you contribute to a dependent care account is not taxable, which means you'll pay less taxes than you would if this money is counted as taxable income.
This section explains the kind of expenses that are reimbursable with a Dependent Care Reimbursement Account and other important rules of the program. Please read it carefully. Although a reimbursement account is a great way to lower your taxes and save money for certain expenses, you will forfeit any funds left in your account if you don't claim them by the deadline. You can avoid this by following these simple steps:
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Expenses for child care, elder care, and care for a disabled dependent are reimbursable if the care is necessary for you to work or look for work. If you're married, your spouse must also work, unless he or she is a full-time student or physically or mentally incapable of caring for himself or herself.Dependent care services may be provided in your home or someplace else, including family day care homes and day care centers that comply with all applicable state and local laws. Day camp expenses qualify as eligible expenses, but overnight camp expenses do not qualify.
To be reimbursable, the care must be provided sometime from the effective date of your enrollment through the current plan year. This is different than if you claim a tax credit on your current federal tax return, which bases eligibility on the year when you paid for the dependent care rather than when the care was provided.
If you need help determining whether your expenses qualify for reimbursement, check IRS Publication 503 and/or consult a tax advisor.
For child care expenses to qualify, your child must be
a dependent under the age of 13 when the child care is provided. (There is no
age limit if your child is disabled.) You must be able to claim an exemption
for this child on your federal tax return. However, if you are divorced or separated, your expenses may
qualify if you are the custodial parent (have more than 50 percent custody)
even if you can't claim the child's exemption (see IRS Publication 503 for details).
If you have a child who turned 13 in 2020 and have unused funds at the end of the 2020 plan year, you can continue to be reimbursed for expenses incurred before the later of the date the child turns 14 or the end of the 2021 plan year (December 31, 2021).
Elder care and disabled dependent care
PLEASE NOTE: The Working Families Tax Relief Act of 2004 (WFTRA) provides the definition of tax dependents (Internal Revenue Code section 152). If you have used the Dependent Care Reimbursement Account to pay for elder care expenses, you may want to consult a tax advisor to determine if your dependent meets the qualifying dependent rules under WFTRA.
If the care is for a parent or other dependent who is disabled, that person must live in your home at least 8 hours a day, be unable to care for himself or herself, and be someone you can claim an exemption for on your federal tax return (even if you don't claim the exemption because the person's income exceeds the allowable limit).
A person who's unrelated to you but lives with you and is a member of your household may be considered your dependent if you provide over half of his or her support and the person qualifies as a dependent under Internal Revenue Code section 152.
Services required for the maintenance of your household such as cleaning and cooking are eligible for reimbursement if the primary function of the provider of this service is to care for your dependent.
If your child care provider includes other services that are incidental to and can't be separated from the child care expense, the full amount is reimbursable. For example, if your child is enrolled in a nursery school, and the school provides lunch and education along with providing child care, the full amount you pay the school is reimbursable (within the annual limits of a Dependent Care Reimbursement Account).
If you enroll in a Dependent Care Reimbursement Account, your contributions to it must be:
At least $20 per month, and
No more than $5,000 per year per household ($2,500 for a married individual filing a separate tax return).
In other words, over a 12-month period you may contribute a minimum of $20 per month up to a maximum of $416.66 per month (or $208.33 if you're married and filing a separate tax return). If you enroll mid-year, you may contribute more than $416.66 per month (up to the applicable annual household limit).
If you earn more than $120,000 in prior tax year, you're considered a "highly compensated employee" under IRS rules and may be subject to a lower maximum contribution than listed above. This program can't determine your maximum contribution until all enrollment documents have been processed (typically February or March). We will notify you if we determine that you must reduce your contribution amount.
Under no circumstances may your annual contribution exceed the applicable maximum annual contribution, your annual earned income, or your spouse's annual earned income, whichever is less.
If your spouse is a full-time student or a dependent who is physically or mentally incapable of caring for himself or herself, for the purpose of determining your annual contribution your spouse will be considered to have:
To determine a monthly deduction amount that's appropriate for you, start by reviewing your dependent care expenses over the past year. Consider factors that may cause the cost to fluctuate such as your child returning to or entering school, reaching age 13, vacations, school breaks, care provider's vacation, etc.
If you have a child who turned 13 in 2020 and have unused funds at the end of the 2020 plan year, you can continue to be reimbursed for expenses incurred before the later of the date the child turns 14 or the end of the 2021 plan year (December 31, 2021). To estimate a monthly contribution, divide your total estimated costs for the year by 12 (if you're enrolling during open enrollment). If you're enrolling mid-year as "newly eligible," divide the total by the number of months you will be enrolled (beginning with the effective date of your enrollment through December 31).
Tax credit vs. reimbursement account: If you have dependent care expenses, you may already be familiar with the dependent care tax credit you can claim on your federal tax return. Depending on your income level, amount of dependent care expenses, and other factors, you may find that a reimbursement account provides a lesser tax advantage than claiming the tax credit on your federal tax return. Before enrolling in a reimbursement account, consult a tax advisor and/or review IRS Publication 503 if you're not certain which method works best for you. For more information review IRS Publication 503.
Filing IRS Form 2441: If you're enrolled in a Dependent Care Reimbursement Account for the current plan year, you will need to complete Part 3 of IRS Form 2441 ("Child and Dependent Care Expenses") and attach this form to your current federal tax return. (If you use Form 1040A, attach Schedule 2 instead.)
If you experience a change in status that's listed below, you're permitted to take the action that's listed below that change. You have 60 days following the date of your status change to take the corresponding action.
Your completed form(s) must be received at the State Controller's Office by the tenth of the month to be effective on the first of the following month. Forms received after the tenth of the month are effective on the first of the next following month.
2020 and 2021 Plan Year Relief under the Consolidated Appropriations Act of 2021 and IRS Notice 2021-15
You will be allowed the opportunity to make a one-time, mid-year election change on a prospective basis without a permitting event. You may stop, enroll or change your current monthly contribution for the Medical Reimbursement Account, Dependent Care Reimbursement Account or both plans. Retroactive changes and refunds are still not permissible under IRS guidelines. Once this one-time exception has been utilized, you must experience a permitting event in order to make another election change.
May enroll in reimbursement account(s) as newly eligible.
May enroll in reimbursement account(s) as newly eligible or, if currently enrolled, may cancel/change reimbursement accounts.
May enroll in reimbursement account(s) as newly eligible or, if currently enrolled in a reimbursement account, may increase payroll deduction.
May enroll in a Dependent Care Reimbursement Account as newly eligible or, if currently enrolled in a Dependent Care Reimbursement Account, may cancel/change enrollment.
May enroll in a reimbursement account(s) as newly eligible or, if currently enrolled, may cancel/change elections.
If currently enrolled in reimbursement account(s), may cancel/decrease payroll deduction. New enrollments are not allowed.
If currently enrolled in a Dependent Care Reimbursement Account, may cancel/decrease payroll deduction. New enrollments are not allowed.
If currently enrolled in a Dependent Care Reimbursement Account, may cancel/change enrollment. New enrollments are not allowed.
May enroll in Dependent Care Reimbursement Account as newly eligible or, if currently enrolled, may cancel/change enrollment.
May enroll in Dependent Care Reimbursement Account as newly eligible or, if currently enrolled, may cancel/change enrollment. Action allowed only if the provider is not a relative.
In addition to the permitting events listed above, here are some other payroll status changes and how they affect your enrollment:
Non-Industrial Disability Insurance (NDI): If you go on NDI while enrolled in a Dependent Care Reimbursement Account, your monthly deductions remain in effect and will be reflected on your NDI check.
Industrial Disability Leave (IDL) and Temporary Disability (TD): If you go on IDL or TD while enrolled in a Dependent Care Reimbursement Account, your account deductions will stop for as long as you're on IDL or TD. If you return to regular pay within the plan year, your deductions will resume. However, if you go on IDL or TD with supplementation (IDL or TD/S), your reimbursement account deduction will continue, provided the amount of your supplementation income is large enough to cover the full amount of your account deductions.
State Disability Insurance (SDI) for employees in Bargaining Units 1, 3, 4, 11, 14, 15, 17, 20 and 21: If you go on SDI while enrolled in a Dependent Care Reimbursement Account, your enrollment will stop while you are on leave. If you return to pay status in the same plan year, your enrollment will resume.
Unpaid Leave of Absence: If you are on an unpaid leave of absence while enrolled in a Dependent Care Reimbursement Account, your enrollment will stop while you are on leave. If you return to pay status in the same plan year, your enrollment will resume.
Military Leave: If you are called to active military duty for the war on terrorism, you are eligible to retain your state benefits for up to 730 calendar days provided by Government Code section 19775.18.