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kappamama
Level 2

dependent care assistance benefits

*Married Filing separately 

 

On W-2 box 10 dependent care benefits has 3k listed. My employer sends this money directly to the daycare and it covers a small portion of the tuition. Do I have to claim this as income on my tax return (W-2)? I do not qualify for the child and dependent care expense deduction due to my filing status, but that should not change the rules governing tax free child care benefits from my employer. I ran into issues with the TurboTax app last year sending me through a loop, and want to avoid that again, so checking to see if I have to include this amount as income. I believe it should be tax free, but the app is adding to my income.

 

*** Reference: Internal Revenue Code (Code) Section 129 allows employers to provide
dependent care assistance benefits for their employees on a tax-free
basis. These benefit plans are referred to as dependent care assistance
programs (DCAPs).

8 Replies
JosephF8
Expert Alumni

dependent care assistance benefits

 

Who Can Take the Credit or Exclude Dependent Care Benefits?

 

You can take the credit or the exclusion if all five of the following apply.

 

1. Your filing status may be single, head of household, qualifying widow(er) with dependent child, or married filing jointly. If your filing status is married filing separately, see Married Persons Filing Separately, later.

2. The care was provided so you (and your spouse if filing jointly) could work or look for work. However, if you didn't find a job and have no earned income for the year, you can't take the credit or the exclusion. But if you or your spouse was a full-time student or disabled, see the instructions for lines 4 and 5, later.

3. The care must be for one or more qualifying persons.

4. The person who provided the care wasn't your spouse, the parent of your qualifying child, or a person whom you can claim as a dependent. If your child provided the care, he or she must have been age 19 or older by the end of 2019, and he or she can't be your dependent.

5. You report the required information about the care provider on line 1 and, if taking the credit, the information about the qualifying person on line 2.

 

 Married Persons Filing Separately

 

Generally, married persons must file a joint return to claim the credit. If your filing status is married filing separately and all of the following apply, you are considered unmarried for purposes of claiming the credit on Form 2441.

 

• You lived apart from your spouse during the last 6 months of 2019.

• Your home was the qualifying person's main home for more than half of 2019.

• You paid more than half of the cost of keeping up that home for 2019.

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xmasbaby0
Level 15

dependent care assistance benefits

Sorry that money is only “tax free” if you use it for childcare expenses and file under the rules that allow you to claim it as such. It is taxable income and must be entered on your tax return. Your W-2 entries must match what the IRS received from the employer. 

**Disclaimer: Every effort has been made to offer the most correct information possible. The poster disclaims any legal responsibility for the accuracy of the information that is contained in this post.**
kappamama
Level 2

dependent care assistance benefits

We are using it for child care expenses. Please re-read my original question, as I don't believe you read my entire question correctly. Where did I state I was not using the money for child care expenses? A check is sent directly from my employer to the day care for eligible child care expenses. I don't ever see the money. It never comes to me. Turbo Tax is counting it towards my income, and I don't think that is correct. I wanted to know what the threshold was for married filing separately. I pay for my daughter's child care and my work helps me with a small percentage that is sent directly to the day care. The child's mother does not pay for it and we file separately. I need to know the threshold. I thought it was $5000 and my employee has only paid about 3000 to the day care. Thank you if anyone else has insight I would appreciate it. My question is about the dependent care assistance program and NOT the credit. https://www.nbsbenefits.com/dependent-care-assistance-program-vs-dependent-care-tax-credit/

kappamama
Level 2

dependent care assistance benefits

Thank you for your response. My question is about the DCAP. I already knew that I couldn't take the credit because I file separately and did not live apart for over 6 months. I am wanting to know if it was correct to claim all of the money my employer paid my daughter's day care as my personal income, and I believe I found my answer it should only be the amount my employer paid the school over $2500   that is legally taxable (edited to add $5000 if filing jointly, but turbo tax software won't be an issue if you file jointly, just if you file separately which is uncommon). I believe that is the threshold I was looking for, but I would like to find that on an IRS page if you have knowledge on that to verify (link to non IRS page below). Turbo tax is incorrectly claiming it is ALL as income. I *think* I have found a work around for anyone else that has this uncommon tax issue. Even though you are unable to take the take credit/exemption, in order for turbo tax to NOT count the amount as income, you MUST go fill out the dependent care expenses form even though you know you don't qualify for that. Turbo Tax will then tell you that you are ineligible for the tax credit BUT the key is they will update your taxable income and remove the $2500 from your taxable income the calculations. Hope that helps someone else (and makes sens). Thank you again.

 

https://www.nbsbenefits.com/wp-content/uploads/2017/01/DCAP-Info-Sheet.pdf

 

"The Dependent Care Assistance Program (DCAP) allows you to use tax-free dollars to pay for child day care or elder day care expenses that you incur because you and your spouse are both gainfully employed. To participate, determine the annual amount that you want to deduct from your paycheck before taxes. The maximum amount you can elect depends on your federal tax filing status ($5,000 if you are married and filing a joint return or if you are a single parent, $2,500 if you are married but filing separately) Your annual amount will be divided by the number of pay periods in the plan year and that amount will be deducted from each paycheck."

 

JosephF8
Expert Alumni

dependent care assistance benefits

 

To claim the Exclusion in TurboTax

  • From Deductions and Credits
  • Update next to Child and Dependent Care Credit
  • On the landing page select Yes
  • On the Tell Us More About Your Family select the appropriate choices from the list
  • Hit Continue
  • You will then be prompted to enter your spouse's earned income.
  • Hit Continue and go through the provider screens.
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texasranger
New Member

dependent care assistance benefits

I, too, think there is an issue with Turbotax when it comes to DCAP. DCAP money is not paid by my employer. It is pre-tax money that I set aside from each paycheck. I pay the daycare out of pocket and then file claims with my employer's benefits department to get reimbursed from the pre-tax money I set aside. This ensures the money was paid for eligible dependent care expenses.

The amount is reported in Box 10 and Turbotax adds this money to line 1 in 1040 as wages/income with a note "DCB" to mention that part of the income came from Dependent Care Benefits and so is Taxable.

 

Turbotax in no way is letting me fill in Form 2441 correctly to understand this is for eligible childcare expenses.

In the "Child and Dependent Care" section, hit "Update" and answer "Yes" to work on this. Turbotax only mentions that "In for us to get you the child and dependent care credit, both spouses must have earned income or be either a full-time student or disabled."

I answer none of the above since my spouse does not earn income, and it ends there.

 

There is no way for me to tell Turbotax this is for DCAP and the expenses and eligible and it is tax-free no matter what. This has noting to do with the child credit. It is a tax-free benefit that is already verified by my employer.

 

No way for me to enter the expenses in 2441 unless I file my taxes by mail.

 

My status is married filing jointly and the expenses are less than $2000 equal to Box 10 as I make sure I set aside what I am going to use.

 

I am using Turbotax premier.

 

HELP!!!!!!!!!!!!!!!!!!!!!!

KrisD15
Expert Alumni

dependent care assistance benefits

The rules are the same for the dependent care credit and to claim the DCAP as non-taxable. 

"the IRS places restrictions on how the funds can be used. With a DCAP, the tax-free money must be used on eligible dependent care expenses for children under the age of 13 and dependent adults while you and/or your spouse are at work or going to school. Otherwise, the money will be considered taxable and will have to be included as earned income on your annual tax returns."

Talk with the account manager about how the funds may be used. 

 

Rules for DCAP accounts

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texasranger
New Member

dependent care assistance benefits

Thank you KrisD15! That's a good resource.

My understanding was that DCAP money I set aside is non-taxable income with no conditions. I thought it is a benefit we receive as long as it goes to eligible expenses just like an HSA is treated.

Still, I think I am getting the pre-tax benefits of it.

 

I appreciate your taking the time to respond!

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