What is a dependent care assistance program?
A dependent care assistance program is a benefit that is sponsored by an employer. You put aside pre-tax dollars that can be used throughout the year to pay for certain care expenses related to dependents such as children, legally dependent parents, or a disabled spouse.
Things like daycare and elder care are expensive, and the assistance program helps you pay for some of the costs. It also gives you a tax break, as the amount you take out of your paycheck is not subject to state or federal income tax, Medicare, or Social Security taxes. There is a maximum amount that you can take out to be used for claimed expenses.
Learn more about a dependent care assistance program
When do I need to be aware of a dependent care assistance program?
A dependent care assistance program is beneficial to help you cover qualified expenses that allow you to work full-time. For example, if you have a young child that is not yet in school, you can pay for some of the nursery or daycare costs with this money. You can also use it to help pay for care during the day if your spouse is disabled, unable to work, and needs care during the day.
What is important to know about a dependent care assistance program?
The money put aside in a dependent care assistance program may not be used for just any expense. You should understand what the qualifying expenses are and what the requirements are for the program. There are some other important items you should know about a Dependent Care Assistance Program:
- Qualified child-related expenses include programs or care centers that are primarily for care and not for education, and qualified elder care costs cannot include medical care.
- In order for expenses to qualify through the program, both the taxpayer and spouse must be employed, be a full-time student, be looking for work, or be incapable of self-care.
- You must use all of your account funds by the end of the plan year or lose them.