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VitaFlex Employee Guide: Dependent Care Provisions

The Dependent Care Reimbursement Account allows you to pay for out-of-pocket, work-related dependent care costs with pre-tax dollars. The rules regarding eligible dependents, eligible expenses, and other Plan restrictions are outlined in the following two pages. Refer to your Summary Plan Description for details of all Plan provisions.

Who Qualifies As A Dependent?
There are two types of qualifying individuals. These include your:

Dependent child under the age of 13
Spouse or other dependent who is physically or mentally unable to provide for his or her own care and who spends a minimum of 8 hours per day in your home.

A “dependent” is someone you actually claim as a dependent on your federal income tax return (for the purposes of VitaFlex Plan eligibility).

What Dependent Care Expenses Are Eligible?

Expenses paid to a dependent care center or dependent care provider. If care is provided at a day care center, it must be licensed according to the laws of the state where the provider is located.
Expenses paid to an in-home dependent care provider.
Expenses paid for pre-school education.
Expenses paid to an adult day care facility for a qualified dependent.
Expenses paid for after school care or summer camps that are primarily custodial in nature.

What Dependent Care Expenses Are Not Eligible?

Certain expenses related to dependent care are not considered eligible including, but not limited to registration fees, diaper fees, transportation fees, and late payment fees.
Expenses for classes, educational enrichment programs, or after-school programs that offer an educational element are not eligible expenses. Examples of expenses that are not eligible include, but are not limited to, language classes, SCORE, tutoring, gymnastics lessons, piano lessons, certain summer camps and sports classes or leagues.

Are There Restrictions On Plan Participation?
You must actually be at work while your eligible dependent is provided care. If you are married, both you and your spouse must be working while care is provided to your eligible dependent. Generally, one of the following eligibility guidelines must also be satisfied.

If you are married, your spouse must be working; or
You must be a single parent; or
Your spouse must be a full-time student at least 5 months during the year while you are working; or
You are divorced and your child is in your custody.

Must Expenses Be Work Related?
Yes. The IRS only provides a tax break for dependent care expenses incurred while you are working or looking for work. To be eligible, the expenses must be necessary in order for you (or you and your spouse) to remain gainfully employed and must be incurred while you are actually working.

What Is The Maximum Salary Reduction?
If you are married and file a joint tax return or if you are a single parent, the maximum annual salary reduction is $5,000. If you are married and file separate tax returns, the maximum annual salary reduction is $2,500. Additional guidelines are outlined below.

You may not claim reimbursement for dependent care expenses which are greater than your earned income or your spouse’s earned (taxable) income, if you are married.
If your spouse is a full-time student or is incapable of self-care, then spousal income will be presumed to be $200 per month if one dependent is receiving care and $400 per month if two or more dependents are receiving care.
The $5,000 maximum may be split in any way between spouses. However, if one spouse earns less than the annual Social Security wage base, deferring the money under the person who earns less will save more taxes since Social Security taxes will not be paid on the salary deferral.

What Restrictions Are There Regarding Who May Provide Dependent Care?

The care provider may not be your spouse.
The care provider may not be one of your children or your dependent, unless he or she is at least 19 years old and not living with you at the time the care is provided.

How Do Dependent Care Accounts Compare To The Dependent Care Tax Credit?
The circumstances that determine which option offers greater savings vary from family to family. Therefore, the decision to choose the tax credit or the dependent care salary reduction can only be made by carefully examining your personal situation. As a rule, if your combined family income is under $15,000, you should not participate in this Reimbursement plan as the Dependent Care Tax Credit will be more advantageous. If your combined income is between $15,000 and $43,000, you need to examine your circumstances very carefully as one plan may be better depending on your exact income and the number of dependents receiving care.

Generally, if your combined household income is $43,000 or more, participation in this VitaFlex Plan will generally be more advantageous than the Dependent Care Tax Credit. VitaFlex provides an immediate tax deduction, whereas the tax credit is filed at the end of the year. Additional information may be found in your Summary Plan Description. We recommend consulting your tax advisor regarding whether it is more advantageous to participate in an FSA plan or to take the tax credit.

Reporting Dependent Care Expenses On Form 1040 (All Dependent Care Expenses must be reported on IRS Form 2441)
When a participant fails to use all of their Dependent Care Plan Election, the IRS does not require the participant to pay taxes on the unused balance. Your Employer will report all Dependent Care salary reductions in Box 10 on your W-2. You will need to fill out the same amount on Form 2441. When figuring your exclusions, enter the amount forfeited on Form 2441 or Schedule 2 (Form 1040A). This will prevent you from being taxed on any forfeiture for the Plan Year.

Questions about Eligible Expenses
You are responsible for making sure the expenses you submit for reimbursement are considered eligible expenses by the IRS. IRS Publication 503, “Child and Dependent Care Expenses”, identifies the approved deductions for child and dependent care and reviews the tax credit for childcare available to certain individuals. You may order a current copy of IRS Publication 503 by calling the IRS at 800-829-3676 or going to www.irs.gov. However, please note that Section 125 and Publication 503 have different rules on when an expense must be incurred. To “incur” a dependent care expense, as defined by Section 125, means the date when the dependent is provided with the care that gives rise to the dependent care expense, not when the participant is formally billed/charged or actually pays for the care.