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Dependent Care

Offering a Dependent Care Benefits Plan

Dependent care plans are tax advantaged plans that provide for the care of employee's dependents. Dependent care plans can be written either separately or in conjunction with a Cafeteria plan.

Typically, benefits are in the form of cash reimbursement of qualified dependent care by the employee from the employer via the payroll deduction from the employee.

Qualified dependent care is:

  • At home child care for children under age 13
  • Care at nursery schools
  • Household services relating to the dependent care of the elderly or disabled

In general, the maximum contribution to the dependent care plan is $5,000.

Dependent care plans are tested to see if the dependent care plan discriminates in favor of the highly compensated. If the plan is deemed discriminatory, those that are highly compensated will not be able to fund their dependent care on a tax advantaged (before tax) basis.

Since the employee agrees to reduce their income to fund the dependent care, Social Security benefits at retirement/disability may be reduced due to the lack of employee/employer contribution to FICA.

Employers offering dependent care plans must file IRS form 5500.